Set up lease books
Lease books contain the preconfigured setup that will be associated with each lease. The book defines the applied accounting standard, lease types, and threshold that are used as the basis for the classification tests. Classification tests are used to specify the lease type automatically. Based on the information that you enter in the lease summary, formulas within Dynamics 365 Finance will calculate your payments, interest, expenses, and so on, to ensure that you are following the proper accounting standards for ASC 842 and IFRS 16. As a result, you will reduce the risk of spending extensive time doing offline calculations.
To create a lease book, follow these steps:
Go to Asset leasing > Setup > Lease books.
Select New to add a book.
Set the following fields:
- Posting layer - Each book that is attached to a lease is set up for a specific posting layer. Each posting layer has different posting purposes.
- Lease type - Select whether the lease should be classified automatically or whether it should be predefined as a finance or operating lease.
- Accounting framework - Select the framework that is associated with the book.
- Lease term / Useful life (%) setup - The system will classify the lease as a finance lease if the lease type is set to Automatic and if the lease term over useful life of the asset is greater than or equal to the percentage that is entered in this field.
- Present value / Asset fair value (%) setup - Enter a whole number to define the threshold that will determine the lease type. If the present value of future minimum lease payments is more than the user-defined value from the book setup, and if the book's lease classification is set to Automatic, the system will classify the lease as a finance lease.
- Short term threshold (Months) - Enter the number of months to use as a threshold for short-term leases. If the lease term is less than or equal to the number of months that you enter in this field, the system will classify the lease as a short-term lease and the deferred rent treatment will be applied.
- Low value threshold - Enter an amount to use as a threshold for low-value leases. If the fair value of the asset is less than or equal to the value that you enter in this field, the system will classify the lease as a low-value lease and the deferred rent treatment will be applied.
- Pay to vendor - Set this option to Yes to allow lease payments to be posted, as an invoice, to the vendor account that is specified on each lease. When a lease payment is posted, the vendor account will be credited. If this option is set to No, the account that is specified for the Lease payment posting type on the Lease posting parameters page will be credited instead.
