Mid-Term Buyout Creates Negative Expense Recognition in Month of Buyout - Support Advisory

Issue

When a lease has an early (non RC) buyout recorded, the balance in the Accumulated Depreciation – Step Payment Timing Adjustment- Operating Lease (SPTA) account is transferred to the Lease Rental Expense - CapOp Depreciation account instead of being rolled into the Purchased Asset account.

What is the impact?

For a Capitalized-Operating lease, the SPTA account is a contra account of the ROU asset and therefore a component of the net book value of the ROU asset. So any left-over balance in this account on the early buyout date, should be rolled into the Purchased Asset account, to adjust the cost basis of the purchased asset. It should not be expensed.

Recommended Solution

Record a manual reclass entry in the ERP transferring the amount from the Lease Rental Expense - CapOp Depreciation account to Purchased Asset account.