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Recording and Accounting For Leases Through Oracle EBS R12: Case Study
Recording and Accounting For Leases Through Oracle EBS R12: Case Study
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Recording and Accounting for Leases through Oracle EBS R12
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Recording and Accounting for Leases through Oracle EBS R12
A lease will be considered a capital lease if any of the following criteria is met:
1. ownership of the asset transfers to the lessee at the end of the lease
2. A bargain purchase option exists
3. term of the lease is more than 75% of the economic life of the leased asset
4. present value of the minimum lease payments exceeds 90% of the fair market value of the asset at
lease inception
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Neither entering lease payments nor determining Lease type creates journals.
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Recording and Accounting for Leases through Oracle EBS R12
Operating Lease expense has to be recognized on a straight-line basis over the life of the lease; with a
deferred liability that accounts for the difference between cash paid and accrued expense.
Example, operating lease for 5 years, the first 3 years, the lease is EGP 10,000 per month; the last two
years, the lease increases to $12,000 per month.
Total Lease payments = EGP 648000 over 60 months (= EGP 10800)
Monthly JE for the first three years
# Account Amount
1 Dr. Operating Lease Expense 10800
2 Cr. Deferred Liability 800
3 Cr. Cash 10000
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Recording and Accounting for Leases through Oracle EBS R12
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Select the payment you want to process and press (B) Export
Oracle Assets submit “Export Lease Payments to Payables” request
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Recording and Accounting for Leases through Oracle EBS R12
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Recording and Accounting for Leases through Oracle EBS R12
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Notes:
1- Distribution account is the Payment account entered in Lease Details
2- Amount line is adjusted to consider calculated sales tax
Production line will cost EGP4, 000,000.00 to purchase new, lessor can lease it for 8. Lease price is
5,000, 000 paid over 8 installments. Financing this lease by a loan will cost lessee 10% interest. If
production line had been bought, it would be depreciated over 10 years.
According to these terms, the lease is capitalized based on the realization of third condition (term of the
lease [8 years] is more than 75% of the economic life of the leased asset [10 years])
JE at initiation of lease agreement
# Account Amount
1 Dr. Leased Assets 5, 000, 000
2 Cr. Lease Liability 5, 000, 000
JE for payment
# Account Amount
1 Dr. Lease Liability 5, 000, 000
2 Cr. Bills Payables - Current 1, 000, 000
3 Cr. Bills Payables – Long-Term 4, 000, 000
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Recording and Accounting for Leases through Oracle EBS R12
JE for payment
# Account Amount
1 Dr. Depreciation Expense 625, 000
2 Cr. Accumulated Depreciation 625, 000
Figure 12
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Recording and Accounting for Leases through Oracle EBS R12
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Recording and Accounting for Leases through Oracle EBS R12
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# Account Amount
1 Dr. Leased Assets 5, 000, 000
2 Cr. Asset Clearing 5, 000, 000
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Recording and Accounting for Leases through Oracle EBS R12
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# Account Amount
1 Dr. Lease Liability 5, 000, 000
2 Cr. Bills Payables 5, 000, 000
At maturity date
# Account Amount
1 Dr. Bills Payables 625, 000
2 Cr. Cash Clearing 625, 000
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Recording and Accounting for Leases through Oracle EBS R12
Alternative Solution
Assets Responsibility:
1- Manual Addition
# Account Amount
1 Dr. Leased Asset 5, 000, 000
2 Cr. Assets Clearing 5, 000, 000
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