Straight-line calculation for leases where tenant is required to expand in future (Must Takes)

Planned Expansion and Growth of a Company

In our last blog, we addressed accounting for leases when a lessee is granted access to a part of a building at first and then granted access to the rest of the building at a later date. This week’s blog addresses a similar situation: Accounting for leases when a tenant signs a contract that legally requires the tenant to expand the leased premises by a pre-determined amount at a later date. This scenario is called a “Phase in” or “Must Take” in real estate circles. For instance, a tenant could sign a lease for a building where the tenant occupies the first floor in year one, but MUST also lease the second floor in the second year. As we stated in our last blog, under current GAAP rules, the FASB states that if rents increase because the tenant gets access to additional property, then rent expense should be allocated proportionally to the fair value of the additional property. As we always do here at LeaseQuery, let’s simplify the accounting with an example.

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

Posted in Uncategorized | Tagged | Leave a comment

Lease Accounting: When early access is granted to part of a building at first, then the rest later.

Early Access

Today’s article is a response to a question we received. We decided to write a blog about it because it is a very common scenario that the vast majority of companies account for incorrectly. The question is as follows:

Hello, 

We have a lease with a landlord. While construction is taking place, the landlord lets us use a smaller space during the construction period, and only charges us for partial rent during that period. My question is whether or not we should include the early occupancy period / construction period in order to calculate straight-line rent. In other words, should the full lease term include the early occupancy period / construction period?

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

Posted in Lease Accounting | Tagged | Leave a comment

Using Excel for Lease Accounting Cost Our Client Over $28,000 dollars in Overpayments. How Much Could it be Costing You?

Show Me the Money Check Earnings Payday

You won’t believe how much we just saved a client!

We often tell you how we save our client’s money, but today, as quoted directly from Jerry Maguire, we would we would like to show you the money. In today’s post we will show you how we saved an actual client money over a small sample of 3 months. At this point we would like to thank our client that graciously allowed us to use their numbers in this post, as long as they were not identified. You know who you are, and we thank you.

We read and entered all the client’s leases into our software, then compared the payments the client made via their accounts payable system to the amounts they were supposed to make per our software from the lease documents.  Also note that we perform this analysis for all our clients, to ensure that payments are accurate. The following is the summary we sent the client, verbatim.

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

Posted in Uncategorized | Tagged | Leave a comment

How To Transition From Current to the New Lease Accounting Rules: A Comprehensive Example.

Hello I'm in Transition Change Evolving Name Tag Words

This week’s blog is a comprehensive example explaining how to transition from current GAAP to the new lease accounting standards. We will be using a real life scenario that one of our clients graciously allowed us to use as an example.  We have a lot to cover, so let’s get right to it.

Assume a Tenant signs a lease document with the following predicates:

Lease Term: A term commencing on April 1, 2016 (Commencement Date) and continuing for one-hundred-twenty (120) full calendar months. Tenant shall be granted access to the Premises sixty (60) days prior to the Commencement Date to install equipment and furnishings (the “Early Access Period”). Such access shall be subject to all the terms and conditions of this Lease, except that the Commencement Date and the payment of Rent shall not be triggered thereby. 

TI Allowance: The tenant received a Tenant Improvement Allowance of $1.2 Million as an incentive to sign the lease from the landlord.  The landlord paid the contractor directly for the construction of the Improvements. The improvements were constructed prior to the Early Access Period.

Moving Expenses: The tenant also received a reimbursement of $30,000 in moving expenses from the landlord.

Base Rent: Per the lease document, the rent commencement date is 3 full calendar months after the tenant opens for business at that location. Base rent is $205,000/month; with annual increases on the anniversary of the rent commencement date of 3%.

Assumptions: Assume that the lease is classified as an operating lease, assume that the tenant is a public company, assume that the rate inherent in the lease is unknown, and the fair value of the building is $300 Million. Assume the Tenant opened for business at the location on June 1, 2016. Assume that if the company tried to borrow $300 Million (to purchase the building) its borrowing rate would be 9% in 2019, but if the company tried to borrow $27 Million (the amount of the total lease payments) its borrowing rate would be 6% in 2019.

Here are the steps to take to transition from Current GAAP to the new lease accounting standards issued by the FASB:

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

Posted in New Lease Accounting Rules | Tagged | Leave a comment

How to Create a Lease Liability Amortization Schedule Under New Lease Rules

Amortization Schedule

Last week’s blog focused on one important thing: How to calculate the present value of lease payments using excel spreadsheets. This week, we will show you how to calculate the present value of minimum lease payments AND prepare the liability amortization schedule for the lease liability in the same step, using excel. Let us stress that this information is important not just for companies that plan on continuing to use excel spreadsheets for lease management. It is also a useful tool for those of you that plan on using lease accounting and lease management software, as you can use the information in this blog to ensure that your chosen software provider is actually performing this calculation accurately.  So basically, with the method we explain below, you will have everything you need to comply with the new lease rules powered only by an excel spreadsheet. Next week’s blog will feature a comprehensive example of how to transition from current lease accounting rules to the new lease accounting standards, and we will be referencing the methods utilized in this blog for our calculations.  For now, here are the steps to follow to calculate the present value of lease payments AND the lease liability amortization schedule using excel, when the payment amounts are different.

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

Posted in Lease Liability, New Lease Accounting Rules | Tagged | Leave a comment