Equipment Assumptions / ASC 842 Tests Page - Equipment Contract Module

If you have added equipment to your contract, the equipment record should automatically appear in the Equipment Assumptions / ASC 842 Tests List.

To configure an equipment accounting assumptions record:

1. Select the equipment whose assumptions you want to edit from the Equipment Assumptions / ACS 842 Tests List section at the top of the page.

   The data for the equipment will automatically populate in the Equipment Info section of the page. If you need to make changes to the equipment data, proceed to step 2. If you are satisfied with the equipment data, proceed to step 3.

2. If you need to make changes to a piece of equipment:

   1. Enter the equipment name into the Name field.

   2. Select the operational status of the asset from the Operational Status field.

      Create a new group or category.

   3. Select the asset group from the Asset Group field.

      Create a new group or category.

      Groups are the first level of organization in Lucernex. Groups are the parents of types, and grandparents of categories. Groups, types, and categories are used to simplify reporting.

   4. Select the asset type from the Asset Type field.

      If you want to create a new type, follow the Add a Type procedures.

      Types are the second level of organization in Lucernex. Types are the children of groups, and parents of Categories. Groups, types, and categories are used to simplify reporting.

   5. Select a category from the Category field.

      The category is a high level of organization for equipment maintenance—for example, a generator could fall under the “electrical” maintenance category.

      If you want to create a new category code, follow the Add an Asset Category Code procedures.

   6. Enter the serial number for the equipment in the Serial # field.

   7. Enter the asset number in the Asset Number field.

   8. Select the associated entity from the Associated Entity field.

      An entity is where an asset lives. If an asset does not have a particular location, the associated entity can be left blank, or tied to a portfolio or a contract.

3. Select the Does Ownership Revert to Tenant? check box if the ownership of the asset reverts to the tenant at the termination of the lease term.

4. (required) Enter the fair value of the asset into the Fair Value of Asset field.

   FASB 842.10.20 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

5. Enter the name of the person who assessed the fair value of the asset in the Fair Value Source field.

6. (required) Enter the portion of the asset you control in the Portion of Asset Controlled field.

7. (required) Enter the value of the remaining economic life of the asset using the Remaining Economic Life fields provided.

8. Select the check box if the asset has a specialized use, such that the lessor will have no alternative use for it.

9. If applicable, enter the accounting override dates in the Accounting Begin Date Override and Accounting End Date Override fields.

   You can also click Calendar to open the Date Picker and select the appropriate date.

   The purpose of these fields is to change the dates that the test and rent schedules will be run for. If you do not enter override dates, the test and schedules will run based on the dates of the expense schedules for the asset.

10. If this equipment uses a different discount rate, enter the discount rate in the Discount Rate Override field.

11. If you need to override the accounting method for the asset, select the appropriate accounting method from the Accounting Method Override field.

12. (Finance only) If you want to specify a percentage or amount of the total asset balance that should remain after the schedule end date, enter the value in the Remaining Asset Balance field.

    The value of this field defaults to $0.00.

    There are two option buttons: Currency and Percentage. If you enter a value between 0-100, the system will default the option setting to Percentage. If you enter a value of 100.01 or above, the system will default the option setting to Currency. You can override the default option setting.

13. (Finance only) If you want to select a date beyond the schedule end date to amortize to, enter the date in the Date to Amortize to field.

    For new equipment assumptions records, this field defaults to the payment end date of the contract. If the equipment assumptions record was created prior to the 20.08 release, this field will default to the payment end date of the contract IF you populate a value in the Remaining Asset Balance field.

    To learn more about finance asset amortization, see the Amortization of the Asset in Finance Contracts article.

14. Enter any initial liability balance adjustments in the Initial Liability Balance Adjustment field.

15. Enter any initial asset balance adjustments in the Initial Asset Balance Adjustment field.

16. Enter any deductions related to the diminished value of the asset in the Impairment Amount field.

    You can simultaneously add an impairment to an Operating equipment asset while also amortizing that asset to an amount or a specific date.

    Important!

    Impairments should be entered as a negative value.

17. Click Save Changes.

    This displays in the Actions menu on the right side of the page.

    The page refreshes. Your equipment assumptions are saved.

1. Select the equipment whose assumptions record you want to delete from the Equipment Assumptions / ASC 842 Tests List section at the top of the page.

2. Click Delete Item.

   This displays in the Actions menu on the right side of the page.

   A dialog opens, asking you to confirm your choice.

3. Click Yes.

   The page refreshes. The accounting assumptions record no longer appears in the Equipment Assumptions / ASC 842 Tests List.

An equipment classification test is separate from your contract classification test. You can run it manually on the Equipment Assumptions / ASC 842 Tests page, or it will be processed automatically when you generate your lease accounting schedule for the asset.

To run an equipment classification test:

1. Select the equipment you want to run a classification test on from the Equipment Assumptions / ACS 842 Tests List section at the top of the page.

2. Click Add Contract Financial Test in the ASC 842 Test table.

   The Add Contract Financial Test window opens.

   Important!

   In some scenarios, your contract may have a different lease classification than your equipment.

   Important!

   Do not select the Locked? check box until you have completed the classification test. Selecting this check box will prevent you from editing the classification test.

3. Test 1: Select the check box if the ownership of the asset reverts to the tenant at the end of the term.

4. Test 2: Select the check box if the lease contains a purchase option that the tenant is likely to exercise.

5. Test 3: Complete the following fields:

   • Remaining Economic Life Threshold: The fraction of the economic life of the underlying asset that amounts to “a major part” of that remaining economic life. This value is usually set to 75%.

   • Year Useful Life Began or Year Built

   • Remaining Economic Life: Enter the value of the remaining economic life using the field and the field provided.

   • Test Begin Date / Test End Date

     Note:

     This test compares the Remaining Economic Life of the lease to the Test Begin and End Dates. If this value is below the Remaining Economic Life Threshold, your lease will pass this test.

   • Is the lease commencement at or near the end of the economic life of the asset?: If selected, Test 3’s outcome changes to Pass regardless of whether the value the Test Term Length to Remaining Life is greater than the Remaining Economic Life Threshold field.

6. Test 4: Complete the following fields:

   • Fair Value Threshold: The fraction of the fair value of the underlying asset that amounts to “substantially all” of its fair value. This value is usually set to 90%.

   • Discount Rate: The discount rate should automatically populate. The Discount Rate is also known as the Interest Rate or Internal Borrower Rate (IBR). To learn how to select a different discount rate from the Manage Discount Rates table, see our Search for Another Discount Rate article.

   • PV Of Structuring Costs: Enter fees paid to the owners of a special-purpose entity for structuring the transaction.

   • PV Of Other Adjustments: Enter other miscellaneous costs that should be accounted for in the schedule.

   • Portion of Asset Controlled: Enter the portion of the asset that you control.

   • Fair Value of Asset: FASB 842. 10. 20 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

   • Fair Value Source: Enter the name of the person who assessed the fair value of the asset. You can also attach a document by clicking the Attach Document .

     Note:

     This test determines whether you are paying more for the asset than the percentage of the asset you control, or whether the initial liability balance is less than or greater than the threshold fair value controlled.

7. Test 5: Select the check box if the asset has a specialized use, such as that the lessor will have no alternative use for it.

8. Click Add to add the classification test to your asset.

   You will still be able to make changes to the test if the result is not what you expected.

   The classification test appears in the ASC 842 Test table.

9. Review your rest results.

   If your results are not what you expected:

   1. Click Edit link in the Actions column of the test in the ASC 842 Test table.

      The Edit Contract Financial Test window opens.

   2. Review the data you entered.

   3. If necessary, make changes to the data.

   4. Click Update.

      The window closes. Your updated ASC 842 Test appears in the ASC 842 Test table.

10. Once you are satisfied with the results of your test:

    Important!

    Locking the test ensures that the test cannot be modified. You cannot delete a classification test once it has been locked, but you can create another test as necessary.

    1. Click Edit link in the Actions column of the test in the ASC 842 Test table.

       The Edit Contract Financial Test window opens.

    2. Select the Locked? check box in the upper-right corner of the window.

    3. Click Update.

       The window closes. Your ASC 842 Test appears in the ASC 842 Test table. It is now locked.

1. Select the equipment whose classification test you want to delete from the Equipment Assumptions / ASC 842 Tests List section at the top of the page.

2. Scroll down to the ASC 842 Test table.

3. Click Delete in the Actions column of the record.

   A dialog opens, asking you to confirm your choice.

4. Click Yes.

   The test is deleted. It no longer appears in the ASC 842 Test table.

To learn how to import your equipment assumptions, see our Bulk Lease Accounting Data Import article.