Tracking Lease Renewals and End of Term
Each year hundreds, if not thousands, of assets will come off lease. Some leases will be renewed. Equipment assets may be returned or bought out. Real estate leases could be expanded, contracted or terminated. Some of these changes such as moving out of your corporate headquarters building will have high levels of visibility. But others such as swapping out photocopiers in the Singapore office will not.
Have you considered what approach you will use for tracking lease renewals and other end of term events such as equipment buyouts and returns to perform lease accounting for:
1) Changes to End of Term Plans
Leases which are expected to be renewed should be accounted for differently than those which are expected to be terminated. But plans can change. How will you become aware if the long term plans for a specific asset change during the term of a lease?
2) Lease Renewals
When a real estate lease is renewed, the rents may change along with other contractual terms. Equipment leases present a unique set of challenges as it is common for some assets to be renewed while others are returned or purchased. How will you track lease renewals being negotiated by various organizations around the business?
3) Real Estate Lease End
You may discontinue real estate leases if you are exiting a specific geographic region or moving into a new facility. How will you track terminations of real estate leases that result from upgrading, expanding or consolidating space?
4) Security Deposits
At the end of the lease, security deposits or other funds might be collected from the lessor. How will you get visibility as these refunds are being collected and applied as non-trade receivables?
5) Equipment Returns
Equipment is frequently returned at the end of a lease and replaced with a newer model that offers better performance, capacity or cost. How will you track which of the multiple equipment assets on a lease schedule are being returned to the lessor and which are being renewed or purchased?
6) Equipment Buyouts
Equipment buyouts are common at the end of lease. And not always for the right reasons. Some assets need to be purchased because they are lost, stolen or damaged. How will you track which assets are being purchased at end of term and which are being renewed or returned?