NetLease - ROU Impairments

Use Case: A lessee is subject to the same asset impairment guidance previous to the new lease accounting standards (ASC 360 and IAS 36), which indicate that an impairment is to be recorded when an asset’s carrying amount is not recoverable (US GAAP) or exceeds the higher of the asset’s value in use and fair value less costs to sell (IFRS).

NetLease supports the accounting for impairments, whether for Financing Leases or Operating Leases:

  1. ROU Impairment for Financing Leases (all IFRS and US GAAP) > Write down the ROU balance and record an impairment charge. The future amortization expense will be revised by calculating a new straight-line amortization based on the revised asset value
  2. ROU Impairment on Operating Leases (US GAAP only) > Write down the ROU balance and record an impairment charge. The lease expense should no longer be recognized on a straight-line basis, but recorded monthly as the sum of (1) straight-line ROU amortization amount, plus (2) the effective interest of the lease liability.

Prerequisites: ROU impairments must be entered in NetLease within the month and prior to month-end amortization and reclass entries.

Step By Step Process:

  • Navigate to the lease record where the modification is to be recorded and select the Modify button
  • On the Lease Modification page update the Modification Type to ROU Impairment  
  • Update the fields as necessary for the ROU Impairment

Field

Description

Example

Effective Modification Date

Defaults to the first period without amortization recorded. To update to a later period, monthly journals will have to be run up to that point – please consider carefully before skipping ahead.

04/01/2019

ROU Impairment Amount

Input the amount to impair (reduce) the existing ROU asset balance (carried forward from the prior period)

4,000

Modification Note

Provide a brief description of the basis and adjustments made with the ROU impairment for subsequent support and reference 

Determined to not be recoverable

 

  • After double-checking updates and inputs for the ROU impairment, click Modify Lease
  • You will be navigated back to the lease record and you can refresh and monitor the Processing Modification… notification until the modification is complete and you can see the modification and subsequent adjustment to the go-forward schedule entries

  • Note how for an Operating Lease the Lease Expense column adjusts from the single expense pre-modification to the post-modification ROU Asset Reduction straight line + Liability Accretion
  • Click on hyperlink to the ROU impairment entry to see the reduction in the ROU asset and impairment charge.

  • A historical record of the modification will be saved to the Modifications subtab of the NetLease Lease record with details from before and after the modification
  • Clicking the Edit link will reveal the lease information both before and after the modification


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