NetLease - Transition methods and go-live overview

Go-live summary

Our go live process is simple. (1) Load leases through CSV import tool or input lease data via user interface and generate the amortization schedules. (2) Kick off a system generated journal entry to establish the proper balances. (3) Reverse out your existing balance.

Pre-requisites

Prior to go-live we need to have the following steps complete.

NetLease global settings complete
- See NetLease Global Settings for guidance
Lease types and account mappings finalized
- See Configure Lease Types & Mappings for guidance
Leases loaded and reviewed
- See NetLease Data Upload for guidance
- See NetLease Data Validation for guidance

Transition method

Historical transition method

NetLease will generate amortization schedules from the beginning of each lease's original lease term.

Pros:

Retain reporting flexibility and a full history of the amortization schedule of each lease

Cons:

Lease modifications that have been made in the past must be performed individually by following the instructions in the Lease Modification Before Go-Live article

Possible transition adjustment if historical amortization amounts don't line up perfectly

Under this method the following rules apply to the lease upload:

Commencement date = Original commencement date of each lease contract

Lease Term (Months) = Full original lease term

Initial Payment Amount = Original payment amount in the first month of the lease term

Incremental Borrowing Rate = Original incremental borrowing rate for the lease

Lease Payment Schedule = Entire lease payment schedule from original lease commencement

Current fiscal year transition method

NetLease will consume existing accumulated amortization and generate schedule for lease liability and ROU asset balances on a go-forward basis.

Pros:

No transition adjustment necessary

No manual lease modifications prior to go-live

Cons:

No view of historical amortization amounts in NetLease subledger or reports. If that history is needed, the Historical transition method is the alternative.

Under this method the following rules apply to the asset upload:

Commencement date = The cutover date, usually the first day of the current fiscal year (note this can be a different date as desired, however, reporting will not be available for any periods prior to this date as this is where the schedule starts)

Lease Term (Months) = Remaining lease term from commencement date (not the full original terms)

Initial Payment Amount = Payment amount in the commencement month

Incremental Borrowing Rate = Incremental borrowing rate for the lease at the original commencement date (not a current rate)

Lease Payment Schedule = Lease payment schedule from commencement month forward only to build the remaining liability

ROU Adjustment = Net ROU - Lease Liability (if accumulated amortization does not need to be carried over); Gross ROU - Lease Liability (if accumulated amortization does need to be carried over)

ROU Asset Accumulated Balance at Commencement Date = Gross ROU - Net ROU (ROU accumulated balance as of the commencement date)

If the liability at cutover does not match the prior schedule, check these first:

- Is the IBR the original rate?

- Is the term the remaining months, not the full original term?

- Does the payment schedule start in the cutover month and include every future escalation?

- Were any past payments accidentally left in?

If the liability ties but ROU doesn't, check the ROU adjustment. Confirm the sign (+/-) and that it's the correct formula for the gross-vs-net choice. Using the net formula while also entering accumulated amortization will double count it.

The two fields can be found under the “Accounting” subtab in the lease record.

If the lease has a difference between the ROU Asset and Lease Liability balances as of the commencement date, then put that net difference in the “ROU Adjustment” field. In the “ROU Asset Accumulated Balance at In-Service” field put the Accumulated Amortization balance as of the commencement date.

This will get the lease to the correct balances as of the Commencement date and going forward.

Transition journal entries

NetLease will book the following entries for each lease:

Debit: Gross ROU asset value
Credit: ROU accumulated amortization at go-live date
Credit: Lease liability
Debit/Credit: Go-live clearing account (This amount is a plug to get the entry to balance)

If the go-live period and the commencement date are the same month, the system will book an Initial Balance Entry instead of a Go-Live Entry. The difference in these entries is that the plug account will be the ROU Clearing account instead of the Go-live Clearing account.

Customer should book the following entry for each lease*:

Credit: Gross ROU asset value
Debit: ROU accumulated amortization at go-live date
Debit: Lease liability
Credit/Debit: Go-live clearing account (This amount is a plug to get the entry to balance)

*IMPORTANT:

The entry booked by the customer should be a native NetSuite journal entry, and not a NetLease-specific transaction
Do not tag lease records to the manual reversing entry
The amounts in the manual reversing entry may not be an exact mirror of the NetLease Go-Live journal entry. Only the Go-Live Clearing Account will always be the same amount in both the Go-Live journal entry and manual reversing entry (see below for handling adjustments)
While a separate Go-Live journal entry will be created by NetLease for each lease, the manual reversing entry can be one combined journal entry

Together these entries net to zero (or small transition adjustment amount). If the historical transition method is used, the small transition adjustment should be written off as of the go live date.

See our Run Go-Live Journals article for more guidance.

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