What is a Transition Lease?
Learn how to record transition leases under accounting standards: ASC 842, IFRS 16, GASB 87
A Transition Lease is any lease with a Commencement Date before the Initial Application Date. The Initial Application Date could be either the beginning of the fiscal period in which the lease standard was adopted or the beginning of the current fiscal period when transitioning from another lease accounting solution.
Example:
Lease commencement date: March 1, 2015
Initial Application Date of new accounting standard: January 1, 2022
Transition Lease Start Date in Crunchafi Lease Accounting
When entering a transition lease, the start date is entered as the same day as the Initial Application Date. The start date is populated in Step 1 when adding a new lease or when using the bulk import template.
If the start date of a lease matches the Initial Application Date of the corresponding Reporting Entity, Crunchafi Lease Accounting prohibits the entry of Lease Incentives and Initial Direct Costs and instead routes entry to Existing Balances under Previous Lease Guidance
When the start date of a lease matches the Initial Application Date of the corresponding reporting entity, the software prohibits entry of initial Lease Incentives and Initial Direct Costs and routes entry to 'Existing Balances under Previous Lease Guidance'. Existing Balances are those balances in place on the balance sheet as of the Initial Application Date and entered as a positive number.
Journal Entries & Existing Balances
The Journal Entry report generates the initial recognition of the ROU Asset and Lease Liability. If existing balances are input in Step 2 of lease entry, the report provides entries to clear out previous balances. Existing balances flow through the ROU Asset in the initial recognition.
ASC 842: Operating Leases
When transitioning Operating Leases to the new standard, it is likely there is a balance on the balance sheet, such as Deferred Rent. Enter these balances as a positive number under Step 2 when adding leases. When viewing the Initial Journal Entries, the balances will flow through the ROU Asset.
ASC 842: Finance Leases
When transitioning Finance Leases to the new standard, it is likely there are balances on the balance sheet, such as Capital Lease Asset, Accumulated Depreciation, or Capital Lease Liability. Enter these balances as a positive number under Step 2 when adding leases. When viewing the Initial Journal Entries, the balances will flow through the ROU Asset.
GASB 87: Leases
When transitioning leases to the new standard, it is likely there are balances on the balance sheet, such as Deferred Rent or Prepaid Rent. Enter these balances as a positive number under Step 2 when adding leases. When viewing the Initial Journal Entries, the balances will flow through the Lease Asset.
NOTE
All GL Accounts for Existing Balances under Previous Lease Guidance can be adjusted under Administration > GL Accounts.