Prorate Income, IDC, and Book Depreciation

(for Calendar Month)

Depreciation is calculated on month end, traditionally LeasePak has taken one full month of the book depreciation for the first month even if the book depreciation start date was not on the first of the month. LeasePak can now prorate book depreciation based on the number days the asset is in the first and last month. This module, Prorate Income, is a seperately purchased module of LeasePak. This module also works with the Table Driven Depreciation module.

LeasePak's monthly accrual cycle will recognize the capital or operating income and IDC/IDR up to the current month end. Anything beyond the current month end is placed into deferral buckets and will be recognized by next months accrual cycle.

Example: The lease Commencement Date is January 10, and assuming you are using a 30 day month (actual days in month may also be used depending on the Accrual Method used). On January 10th, LeasePak will accrue 20 days worth of income only.

When the new switch, "Prorate Income, IDC/IDR, Depr (Y/N)" in the Miscellaneous Customization option of the Portfolio [U0212] update, is set to 'Y'; LeasePak will prorate finance or operating income, IDC/IDR and book depreciation based on the number of days the lease or asset is active on specific month. This field works in conjunction with the "Accrual Deferral Days " field set to '0' and the "Change Depreciation at Term (Y/N) " set to 'N'. field to be set to '0' and the

The income and IDC/IDR amounts that are deferred to the next month will be stored in the new Deferred Lease Income (RDF) table and the depreciation portion that is not recognized in the first month will be stored in the Asset (REQ) table.

The following accrual methods are supported in this module:

AOSL, ROSL Operating Straight Line ( prorate based on all month is 30 days month)

AOVE, ROVE Operating Variable Payment (prorate based on all month is 30 days month)

AAPR, RAPR Pre-computed Level Yield (prorate based on all month is 30 days month)

AVL0, AVL5, RVL0, RVL5 Floating Simple Interest Level Principal (prorate base on actual days in month)

AVV0, AVV5, AVVE, RVV0, RVV5, RVVE Floating Simple Interest Variable Principal (prorate base on actual days in month, except *VVE which prorate based on 30 days month)

APX0, RPX0 Fixed Simple Interest (prorate based on all month is 30 days month)

AIF0, AIF5, AIFE, RIF0, RIF5, RIFE Interest Bearing Loan: ("A" payment method only and prorate base on actual days in month, except *IFE which prorate based on 30 days month)

Note: RLT0, ALT5 type accrual methods are always accrued on due day and no deferral is needed. Therefore they can not be prorated.

The following Book Depreciation Methods for Operating assets are supported in this module:

SLxx All the straight line depreciation method.

Note: SLAA, SLAB and SLDD are not traditional straight line depreciation methods and are not supported in this enhancement.

The IDC/IDR calculations are supported in this module:

IDC/IDR

Field

IDC - Initial Direct Cost Book

IDC1 - Initial Direct Cost Insurance Premium

IDC2 - Initial Direct Cost Notary Fee

IDR1 - Initial Direct Revenue Insurance Fee

IDR2 - Initial Direct Revenue Registration Fee

IDR3 - Initial Direct Revenue Dealer Subsidy

IDR4 - Initial Direct Revenue Open Commission

General Ledger Accounts

The new G/L accounts, will contain all credit accounts except IDC, IDC1, IDC2 and depreciation which will debit the account. Below is a more detailed explanation.

Income Type

General Ledger Account Name

Pre-computed lease DEFERRED LESSOR INCOME - PRE

Simple interest lease and IBL DEFERRED LESSOR INCOME - SIM

Suspended Lease DEFERRED SUSP INCOME ACCRUED

Note: Existing account "DEFERRED OPER LEASE REVENUE" is used for operating leases.

IDC/IDR Type

General Ledger Account Name

IDC DEFERRED IDC AMORT

DEFERRED SUSP IDC ACCRUED

IDC1 IDC1 - DEFERRED INS PREM AMORT

IDC1 - DEFERRED SUSP INS PREM

IDC2 IDC2 - DEFERRED NOTARY FEE AMORT

IDC2 - DEFERRED SUSP NOTARY FEE

IDR1 IDR1 - DEFERRED INS FEE INCOME

IDR1 - DEFERRED SUSP INS FEE INC

IDR2 IDR2 - DEFERRED REG FEE INCOME

IDR2 - DEFERRED SUSP REG FEE INC

IDR3 IDR3 - DEFERRED DLR SUBSIDY INCOME

IDR3 - DEFERRED SUSP DLR SUBSIDY INC

IDR4 IDR4 - DEFERRED OPEN COMM INCOME

IDR4 - DEFERRED SUSP OPEN COMM INC

Income and IDC/IDR

For Income, IDC/IDR and book depreciation use 30 days accrual month, the starting date of the accrual cycle is income taken in the current month and the following rules apply:

The starting date of the accrual cycle is taken income

If the due day of the lease is the 1st of the month then 30 days of income will be taken and no income will be deferred to the next month.
If the due day of the lease is the 10th of the month then 21 days of income will be taken and 9 day of income will deferred to the next month.
If due day of the lease is the 28th, it takes 3 days of income and 27 deferred days of income when the cycle accrual invoice is 3/28 on 2/28 even when February only has 28 days.
If due day is the 30th or 31st of the month then 1day of income will be taken and 29 days of income will be deferred to next month.

Note: Prorate is based on the due day of the lease and not the due date of the invoice. If he due day of the lease is 30 then in February, the invoice due date is on 2/28 since there is only 28 days in February. Leasepak still takes one day of income and deferrs 29 days, it does not take 3 days of income for current month and defer 27 days of income to next month.

Example 1

A pre-computed lease commences and is booked on 1/11/01 and on 2/11/01 an invoice is accrued.
The income and IDC/IDR amount is $1000.00 and the IDC/IDR amounts are as follows:

IDC/IDR
Amount

IDC 20.00

IDC1 30.00

IDC2 40.00

IDR1 50.00

IDR2 60.00

IDR3 70.00

IDR4 80.00

The G/L in this example is for a pre-computed lease.

Income amount recognized in current month (January)

20/30*1000.00 = 666.67

G/L entry for Income recognized in current month:

G/L Entry

Debit

Credit

Pre-computed lease Lease Income Receivable Lessor Income-Precomputed

Unearned Income Lease Income Receivable

IDC/IDR amount recognize in current month (January)

IDC/IDR

Calculation

Total

IDC
20/30*20.00
13.33

IDC1
20/30*30.00
20.00

IDC2
20/30*40.00
26.67

IDR1
20/30*50.00
33.33

IDR2
20/30*60.00
40.00

IDR3
20/30*70.00
46.67

IDR4
20/30*80.00
53.33

G/L entry for IDC/IDR recognize in current month:

IDC/IDR

Debit

Credit

IDC IDC Amortization Unamortized IDC Cost

IDC1 IDC1-Ins Premium Amortization IDC1-Unamortized Ins Premium

IDC2 IDC2-Notary Fee Amortization IDC2-Unamortized Notary Fee

IDR1 IDR1-Umamortized Ins Fee IDR1-Ins Fee Income

IDR2 IDR2-Umamortized Reg Fee IDR2-Reg Fee Income

IDR3 IDR3-Umamortized Dlr Subsidy IDR3- Dlr Subsidy Income

IDR4 IDR4-Umamortized Open Comm IDR4-Open Comm Income

Income amount defers to next month (February)

1000 - 666.67 = 333.33 and G/L

G/L for Deferred Income Amount

G/L Entry

Debit

Credit

Pre-computed lease Lease Income Receivable Deferred Lessor Income-Precomputed

Unearned Income Lease Income Receivable

IDC/IDR amount defers to next month (February)

IDC/IDR

Calculation

Total

IDC
20.00 -13.33
6.67

IDC1
30.00 -20.00
10.00

IDC2
40.00 - 26.67
13.33

IDR1
50.00 - 33.33
16.67

IDR2
60.00 - 40.00
20.00

IDR3
70.00 - 46.67
23.33

IDR4
80.00 - 53.33
26.67

G/L for deferred IDC/IDR amount

IDC/IDR

Debit

Credit

IDC Deferred IDC Amort Unamortized IDC Cost

IDC1 IDC1-Deferred Ins Prem Amort IDC1-Unamortized Ins Premium

IDC2 IDC2-Deferred Notary Fee Amort IDC2-Unamortized Notary Fee

IDR1 IDR1-Umamortized Ins Fee IDR1- Deferred Ins Fee Income

IDR2 IDR2-Umamortized Reg Fee IDR2- Deferred Reg Fee Income

IDR3 IDR3-Umamortized Dlr Subsidy IDR3- Deferred Dlr Subsidy Income

IDR4 IDR4-Umamortized Open Comm IDR4- Deferred Open Comm Income

Example 2

Using the same lease as in example 1:

3/11/01 invoice is accrued on 2/11/01.
The income and IDC/IDR amount for 3/10/01 invoice is $900.00 and the IDC/IDR amounts are as follows:

IDC/IDR
Amount

IDC 15.00

IDC1 25.00

IDC2 35.00

IDR1 45.00

IDR2 55.00

IDR3 65.00

IDR4 75.00

Income and IDC/IDR recognize in current month (February)

Income $333.33 (deferred portion of last month) + 20/30*900.00= 933.33

IDC/IDR

Calculation

Total

IDC 6.67 (deferred portion of last month) + 20/30*15.00 11.67

IDC1 10.00 (deferred portion of last month) + 20/30*25.00 26.67

IDC2 13.33 (deferred portion of last month) + 20/30*35.00 36.66

IDR1 16.67 (deferred portion of last month) + 20/30*45.00 46.67

IDR2 20.00 (deferred portion of last month) + 20/30*55.00 56.67

IDR3 23.33 (deferred portion of last month) + 20/30*65.00 66.66

IDR4 26.67 (deferred portion of last month) + 20/30*75.00 76.67

G/L used for current month income and IDC/IDR will be the same as the last month in Example 1.

Last month deferred Income, IDC/IDR is reclassified as regular Income, IDC/IDR. The G/ L will be for the previous months deferral amount

Income

G/L Entry

Debit

Credit

Precomputed lease Deferred Lessor Income - Precomputed Lessor Income - Precomputed

IDC/IDR

IDC/IDR

Debit

Credit

IDC IDC Amortization Deferred IDC Amort

IDC1 IDC1-Ins Premium Amortization IDC1-Deferred Ins Prem Amort

IDC2 IDC2-Notary Fee Amortization IDC2-Deferred Notary Fee Amort

IDR1 IDR1- Deferred Ins Fee Income IDR1-Ins Fee Income

IDR2 IDR2- Deferred Reg Fee Income IDR2- Reg Fee Income

IDR3 IDR3- Deferred Dlr Subsidy Income IDR3- Dlr Subsidy Income

IDR4 IDR4- Deferred Open Comm Income IDR4- Open Comm Income

Income and IDC/IDR amount defers to next month (February)

Income = 900.00 - 600.00(earned this month) = 300.00

IDC/IDR

Calculation

Total

IDC 15.00 - 10.00 5.00

IDC1 25.00 - 16.67 8.33

IDC2 35.00 - 23.33 11.67

IDR1 45.00 - 30.00 15.00

IDR2 55.00 - 36.67 18.33

IDR3 65.00 - 43.33 21.67

IDR4 75.00 - 50.00 25.00

G/L used for current month income and IDC/IDR will be the same as the last month in Example 1.

Accrual methods based on the actual date will be the same as those that are based on 30 day months, except the proration will be based on actual date.

Example

Lease commences on 1/27/01 and accrues to 2/27/01. The income = $1000.00
Current income = 1000*5/31 = 161.29 (January has 5 days 27, 28, 29 30 and 31 and 31 days in accrual period)
Deferred income = 1000 - 161.29 = 838.71

The second month on 2/27/01 and accrues to 3/27/01. The income = $900.00
Current income = 838.71 (deferred from last month) + 900*2/28 = 903.00 (Feb has 2 days 27, 28, and 28 days in accrual period)
Deferred income = 900 - 900*2/28 = 835.71

If the lease suspended, it will be prorated the same, by using the new Deferred Suspended accounts.

Depreciation

Depreciation will be similar to Prorate Income, IDC/IDR. The depreciation on book depreciation starting date is recognized in the current month.

If the book depreciation starting day is 1st of the month then it will take whole month of depreciation and no depreciation is deferred.
If the book depreciation starting day is 10th of the month then it will take 21 days of depreciation and 9 day of depreciation is deferred.
If the book depreciation starting day is 2/28, it takes 3 days of depreciation and 27 days of depreciation is deferred. Even though February only has 28 days.
If the book depreciation starting day is 30 or 31 of the month then it still takes 1 days of depreciation and 29 days of depreciation is deferred.
The deferred portion of the depreciation will be added after the depreciation life is completed.

Example

Asset book depreciation start date is 1/11/01 and the depreciation method is SL01. The cost is $1000.00.

Month

Depreciation Recognized for Current Month

Depreciation Deferred

Total Month

Life to Date Recognized

Jan 2001 1000/12 - 27.78 = 55.55 1000/12 *(10/30) = 27.78 55.55 + 27.77 = 83.33 55.55

Feb 2001 1000*2/12 - 83.33 = 83.34 55.55 + 83.34 = 138.89

Mar 2001 1000*3/12 - 83.33 - 83.34 = 83.33 138.89 + 8.33= 222.22

Apr 2001 1000*4/12 - 83.33*2 - 83.34 = 83.33 222.22 + 83.33 = 305.55

May 2001 1000*5/12 - 83.33*3 - 83.34 = 83.34 305.55 + 83.34 = 388.89

Jun 2001 1000*6/12 - 83.33*3 - 83.34*2 = 83.33 388.89 + 83.33 = 472.22

Jul 2001 1000*7/12 - 83.33*4 - 83.34*2 = 83.33 472.22 + 83.33 = 555.55

Aug 2001 1000*8/12 - 83.33*5 - 83.34*2 = 83.34 555.55 + 83.34 = 638.89

Sep 2001 1000*9/12 - 83.33*5 - 83.34*3 = 83.33 638.89 + 83.33 = 722.22

Octr2001 1000*10/12 - 83.33*6 - 83.34*3 = 83.33 722.22 + 83.33 = 805.55

Nov 2001 1000*11/12 - 83.33*7 - 83.34*3 = 83.34 805.55 + 83.34 = 888.89

Dec 2001 1000 - 83.33*7 - 83.34*4 = 83.33 888.89 + 83.33 = 972.22

Dec 2001 27.78 (deferred amount from Jan 2000) 972.22 + 27.78 = 1000.00

Totally depreciated

G/L Regular Depreciation

G/L Entry

Debit

Credit

Off Lease Asset Depreciation Expense Inventory

On Leae Asset Depreciation Expense Accumulated Depreciation

G/L Deferred depreciation

G/L Entry

Debit

Credit

Off Lease Asset Deferred Depreciation Expense Inventory

On Lease Asset Deferred Depreciation Expense Accumulated Depreciation

When the deferral depreciation is reclassified as a regular depreciation income, the G/L will be as follows:

G/L Entry

Debit

Credit

Off/On Lease Asset Depreciation Expense Deferred Depreciation Expense

Deferred Portions

Leasepak will take one additional month of accruals or depreciation in order to recognize the deferred portion of the prorated Income IDC/IDR and Depreciation.

Example

A 12 month RAPR lease the last deferred portion of income and IDC/IDR will be recognized in the 13th month. For SL01 types, the depreciation will also fully depreciate in the 13 month.

Further restrictions are needed in order to ensure the prorate income IDC/IDR prorate properly.

Prorated leases cannot process:
- Payment Extensions [U0107]
- Due Date Change [U0118]
Prorated leases can process:

Change Leaes Key [U0114], if the Portfolio switch, "Prorate Income, IDC/IDR, Depr (Y/N)" is the same for the old and new key.
If a Payoff amount is not received and is placed on the invoice during Payoff/Termination (Off Lease Billing Module Purchased), LeasePak will credit the Income Account with the invoice amount. This income will not prorated.
If lease is extended, the Deferred Iincome, IDC/IDR will be recognized in the first month accrual of the extended lease.
Deferred income and IDC/IDR will be recognized immediately during lease Payoff and Termination.
Deferred depreciation will be recognized immediately during lease Payoff and Sales of Asset.

Operating Lease Examples

Example 1

An operating lease is book on 1/11/01 and assets book depreciation start date is also 1/11/01.
Starting asset depreciation cost is $10,000.00
Depreciation method is SL05 and the lease term is 12 months.

On 06/11/01, the lease is accrued up to 6/11/01 and depreciation is up to 5/31/01.
A Payoff is processed.

Depreciation Deferred 10,000/60*(10/30) = 55.56

Depreciation Taken 10,000*5/60 - 10,000/60*(10/30)= 777.77

Total Depreciation $ 833.33.

If Payoff Effective date is between 6/1/01 and 6/11/01, this module will reclassify the Deferred Depreciation (55.56) as Regular Depreciation and the Total Depreciation will be $833.33.

If payoff effective date is on June such as 6/20/01, this module will reclassify the Deferred Depreciation (55.56) as Regular Depreciation and reverse one month of depreciation. Therefore there will be no deferred amount after a Payoff is processed and the Total Depreciation will be $833.33 - 10000/60 (one month depreciation) = 666.67

Deferred depreciation will be recognized immediately during asset payoff.

For operating lease, the book depreciation start date and staring cost is changed and depreciation method can also be changed during a Lease Extension. Therefore the prorated amount of depreciation, before the lease extension, will be recognized immediately in lease extension.

Example 2

Operating lease is book on 1/11/01 and the asset book depreciation start date is also 1/11/01
The asset starting depreciation cost is $10,000.00
Depreciation method is SL05 depreciation method and the lease term is 12 months.
This lease is matured on 1/11/02.
On 1/11/02:

Depreciation Deferred 10,000/60*(10/30) = 55.56

Depreciation Taken 2000 - 10000/60*(10/30) = 1944.44

Total Depreciation $ 2,000.00

During Lease Extension, the asset depreciation starting cost will change to undepreciation amount = 10000 - 2000 = 8000.
The depreciation start date will change from 1/11/01 to 1/11/02.
The original depreciation method may be kept or changed to another depreciation method.
When the asset depreciation set up is changed, LeasePak will recognize the deferred depreciation amount (in this case 55.56) immediately during the Lease extension.

If thePortfolio Prorate switch is set to 'Y', an edit check display and only allow the lease to be booked with an accrual method that is supported in this module.
- The book depreciation of the asset only allows Straight Line depreciation methods, Bypass depreciation methods.
When the lease is in a Suspended status, LeasePak will prorate the Suspened interest
Only Lessor Income may be prorated. Vendor and Investor Income may not be prorated within this module.

Reporting

Trasactions for the current Deferred Income and IDC/IDR will be displayed in the Lease Inquiry [R0905] report under Accrual Information and Deferred Depreciation under the Asset Detail. This fields will only be displayed if the Portfolio Prorate switch set to 'Y'.

The Deferred G/L Account information will be displayed in the G/L Reconciliation [R0403] and Master Reconciliation [R0460] reports. Additionally, the Amortization [R0109] and Forecasting [R0112] reports contain a new Deferred column for Income, IDC and Depreciation amounts.

Deferred accounts displayed in the Calculation Customizations option of the Portfolio [U0212] update will allow the user to choose which accounts should be included in Account Balance[R0103] report.

The information contained in this document is the property of McCue Systems, Inc. Use of the information contained herein is restricted. Conditions of use are subject to change without notice. McCue Systems, Inc. assumes no liability for any inaccuracy that may appear in this document; the contents of this document do not constitute a promise or warranty. The software described in this document is furnished under license and may be used or copied only in accordance with the terms of said license. Unauthorized use, alteration, or reproduction of this document without the written consent of McCue Systems, Inc. is prohibited.