SAP Note

2555105 - Explanation of calculations IFRS 16 / US GAAP ASC 842

Component: RE-FX-LA (Lease Accounting), Version: 15, Released On: 15.07.2019

Symptom
New IASB and FASB leasing standard for the handling of leasing contracts (IFRS 16 and US-GAAP ASC 842)

Other Terms
Interest calculation, net present value calculation, SAP contract, IFRS 16, US-GAAP ASC 842, leasing, right of use, leasing
liability, interest and repayment, contract valuation, IFRS, International Financial Reporting Standards, US GAAP, RE-FX,
real estate, property, FASB 13, sublease, disclosure, SAP Contract and Lease Management

Reason and Prerequisites

This SAP Note describes the general functions for net present value calculation and interest calculation.
The setting options for interest calculation are also displayed.
This SAP Note describes functional options only. It does not provide any recommendations in relation to legal (customer-
specific) processing. These must be agreed upon with the relevant auditors.

Solution
General statements about calculation within SAP RE-FX
A very large number of parameters within SAP RE-FX have an effect on the result of calculation of, for example, net present
values, interest series or RoU movements.
In addition to the setting options in Customizing (interest calculation method, interest calculation), these are as follows in the
application:
Rhythm settings (30 days / to the day)
The due date and corrections of the due date
Decimal places of currencies
Leap years / start of billing
Pro rata entry of conditions
Condition shares taken into account
and many other things
To understand the calculations within RE-FX, therefore, you should ensure that you have taken the identical parameters into
account in your calculation.

Possibilities for entering interest rates

In the valuation parameters of the contract, the interest rates can be entered within a valuation rule according to the precise
time slice (valuation object and accounting principle). For this, the following entry options are available:
1. Manual entry:
Here, you enter the interest rate manually (for example, from an original contract).
This can also be done for several contracts / valuation rules using the transaction "RECEISRULECN - Display and maintain
valuation rules".
You can also load or change interest rates from external sources using BAPI.

2. Reference interest rates from SAP FI

In this case, the interest rate is drawn from the reference interest tables (T056R) of the SAP FI as a default value at the time of
insertion.
For this purpose, the relevant reference is stored in the Customizing of the SAP RE-FX "Control for each contract type in the
company code”.
3. Customer-specific default interest rates
You can use a customer-specific implementation of the BAdI "BADI_RECE_EVALUATION_RULE" to determine the interest
rate according to an individual logic and write it to the valuation rule.
Individual yield curves (for example, according to runtimes and portfolio) can be implemented using this method.
Please make sure that SAP Note 2633191 has been implemented.

4. Interest rate calculation from net present value specification

You can use this interest entry method as soon as a specified present value is known.
Here, a condition with the valuation behavior "C – net present value specification" is assigned to the valuation rule.
The calculation of the interest rate is then carried out automatically and cannot be changed.

Setting options for interest calculation

For the calculations in RE-FX, there are various setting options in Customizing or in an enhancement implementation.
1. Selection of the interest calculation method:
The interest calculation method for each valuation rule can be defined in Customizing for the valuation rule. These are, for
example:
360E / 360
360E / 365
360E / actY
and many other things
(Note the following: For the interest calculation method A (actW/252), you must add an interest calendar in accordance with
SAP Note 2689625)

You will find an explanation of the interest calculation methods as follows:

Call the F4 input help for the data element SZBMETH
Navigate to interest calculation
Select your interest calculation (linear interest calculation or exponential interest calculation)
Now select “Days Method” or “Base Days Method”
You now receive a detailed description including selected examples.

2. BAdI for interest calculation

In the standard SAP system, the system performs a linear interest distribution (annual interest on monthly / daily interest).
This distribution can be converted to exponential calculation and / or compound interest calculation.
To do this, proceed as follows:
Exponential interest calculation:
BADI_RECE_EVALUATION_PROCESS and method GET_BEHAVIOR_CONTEXT
Set the parameters as follows:
CF_EXPONENTIAL_INTEREST_CALC = "X".
CD_EXPONENTIAL_SETTL_FREQUENCY = "97". "(=’Daily interest settlement (360)’
CF_EXIT_PROCESSED = ‘X’
Compound interest calculation:
BADI_RECE_EVALUATION_PROCESS and method GET_BEHAVIOR_CONTEXT
Set the parameters as follows:
CF_COMPOUNDED_INTEREST = ‘X’.
CF_EXIT_PROCESSED = ‘X’
Compound interest calculation cannot be used for "Straight Line Lease" valuation rules. In this case, the calculation for these
valuation rules is performed with linear or exponential interest calculation despite activated compound interest calculation.

Technical information about calculation

Almost all calculations within the leasing settlement of SAP RE-FX are carried out in the SAP financial mathematics
component.
For this purpose, the system sends calculation requests from the valuation rule for the contract to the SAP financial
mathematics component and takes returned results into account.
More information about SAP financial mathematics is available as follows:
SAP help for the component CA-FIM-FMA (SAP financial mathematics)
Call transaction FIMA in ERP or S/4HANA
The F1 documentation for the data element TFM_AMMRHYZV
(Note that the "Percentage interest calculation" mentioned in the FIMA documentation is not supported)

Explanations about the calculation

General information
The calculations in SAP RE-FX and SAP financial mathematics are carried out on the basis of the usual formulas for net
present value calculation and interest calculation.
You can find these calculation formulas in the SAP financial mathematics documentation.

Documentation of the calculation results:

SAP RE-FX always calculates the entire cash flow series for the period from the start of calculation to the probable or absolute
end.
For "lease modifications" or "reassessments", new cash flow series are calculated and saved. A versioning of the calculations is
thus available.
See the log for the relevant cash flow record for details about the calculation.

Interest series calculation

Since the calculation of the interest series is the most complex part of the required calculations, it is explained in more detail
in the following.

In general, the system always calculates the interest from the last cash flow record to the first record (that is, from the
contract end date to the contract start date).
The system uses the following values for calculation:
C: Closing stock payable
O: Initial stock payable
P: Clearing posting
I: Interest
The calculation is carried out according to the following formulas:
(1) C = O - P + I
(2) I = O*b with (b=interest rate/100)
from (2) = (3) O = I/b
(3) in (1) = (4) C = I/b - P + I =I( 1/b+1 )-P
from (4) I= (C+P) /( 1/b+1)

The attachment contains an example on the basis of the "illustrative examples" of the IASB: "Example 13 —Measurement by a
lessee and accounting for a change in the lease term, Part 1".

Interest dates
With SAP Note 2689625, further options for defining different interest dates were delivered. There are now options for
considering the due date of the payment in the interest calculation inclusively or exclusively. The following options can be
selected here:
Advance lease payments:
Exclusive consideration: The interest calculation for the day of the due date of the payment is carried out on the basis of
the leasing liability already repaid (repayment before interest calculation)
Inclusive consideration: The interest calculation for the day of the due date of the payment is carried out on the basis of
the leasing liability not yet repaid (repayment after interest calculation)
 The standard system performs "exclusive consideration"
To switch from exclusive consideration to inclusive consideration, proceed in accordance with SAP Note 2689625.
Retrospective lease payments:
Exclusive consideration: The interest calculation for the day of the due date of the payment is carried out on the basis of
the leasing liability already repaid (repayment before interest calculation)
Inclusive consideration: The interest calculation for the day of the due date of the payment is carried out on the basis of
the leasing liability not yet repaid (repayment after interest calculation)
The standard system performs “inclusive consideration”
To switch from inclusive consideration to exclusive consideration, proceed in accordance with SAP Note 2689625.
Mid-period lease payments:
Exclusive consideration: The interest calculation for the day of the due date of the payment is carried out on the basis of
the leasing liability already repaid (repayment before interest calculation)
Inclusive consideration: The interest calculation for the day of the due date of the payment is carried out on the basis of
the leasing liability not yet repaid (repayment after interest calculation)
The standard system performs “inclusive consideration”
To switch from inclusive consideration to exclusive consideration, proceed in accordance with SAP Note 2689625.

Also check the effects described in SAP Note 2689625.

The determination of the dates required for the interest calculation (in particular the repayment date) depends on the
parameters listed above.
The attachment contains two examples that explain the different determination of the interest dates.

Deactivation of the interest summarization:

For advance lease payments with inclusive interest calculation and for retrospective and mid-term lease payments with
exclusive interest calculation, the standard system integrates the one-day interest of the calculation period. This aggregation
can be deactivated using a BAdI implementation.
BADI_RECE_EVALUATION_PROCESS and method GET_BEHAVIOR_CONTEXT
Set the parameters as follows:
CF_INTEREST_COMPRESS_DAY = ‘ ’
CF_EXIT_PROCESSED = ‘X’
Note that the aggregation is not performed in the standard system if the corresponding fiscal year variant is not defined
according to the calendar.
For more details, see SAP Note 2612076.

Note that these settings affect all calculations in the solution and should therefore be validated intensively beforehand.

Particularity – rental payments before the contract start date:

If rental payments are made before the contract start date, the start of consideration is moved to the contract start date—that
is, the interest calculation is performed only as of the contract start date/start of consideration. No interest accrues for the
days before the contract start date. The first clearing posting against the leasing liability is also made only on the contract
start date (this posting is displayed as initial costs). This is due to the fact that the right of use (RoU asset) and the leasing
liability are created only at the contract start date.
As a result, the first rental payment remains on an accruals and deferrals account (if required, on the clearing account) up to
the contract start date.
Example:
Contract start: April 1st
Condition: Monthly at start of period – 10 days (that is, April rent is due on March 20)
In this example, the interest is calculated as follows:
March 20 to March 31: No interest calculation (payment to accruals and deferrals account)
April 01 to April 19: 20 interest days
April 20 to April 30: 10 interest days
and so on

Note that settings on the interest date may lead to further interest splits.
Special feature - valuation of conditions with different payment frequencies:
In the case of a common valuation of two conditions with different payment frequencies, it may happen that the calculated
net present value does not correspond to the total of a separate calculation of the present value per condition.
Explanation:
For annual rents, there is usually only one capitalization time for the interest. If a monthly condition is valuated at the same
time, multiple capitalization times are generated. Because of this, the results of the individual and overall valuation are
different. You only receive the same result in the individual and overall valuation if you generally activate the compound
interest calculation (parameter CF_COMPOUNDED_INTEREST in the BAdi BADI_RECE_EVALUATION_PROCESS,
method GET_BEHAVIOR_CONTEXT). Then a monthly interest capitalization would take place even for an individual
valuation.

This document refers to

SAP Component Title
Note/KBA

2633191 RE-FX-LA RE-FX leasing: BAdI method BADI_RECE_EVALUATION_RULE->COMPLETE_DEFAULTS is not

called

2612076 RE-FX-LA RE-FX: Leasing - corrections and enhancements

2255555 RE-FX-LA Valuation of leasing contracts (SAP Contract and Lease Management based on SAP RE-FX)

This document is referenced by

SAP Note/KBA Component Title

2689625 RE-FX: Leasing - corrections

Attachments
File Name File Size Mime Type

2555105 - Example.pdf 483 application/pdf

2555105_Interest_PointinTime_V02.pdf 698 application/pdf