Depreciation Method 8 - Financial Agreement together with Associated Method 3 - Operating Lease is used for lessee accounting to support ASC 842 Financial Reporting Rules for Operational Leases.
The new depreciation plan calculation is integrated with the leasing agreement through Lease Type 2 - Operating Lease. When the agreement is activated, the depreciation plan is automatically generated.
When a proposal is created, a preliminary fixed asset is created and the total net present value of the lease term is set as the acquisition cost or the Right of Use (ROU). In this example, ROU or acquisition cost is 402,826.78 USD.
The periodic depreciation is then calculated by deducting the interest (total lease liability less Net Present Value for the period) from the lease cost:
However, when an accelerated depreciation in 'FA Depreciation. Create Extraordinary' (FAS140) is posted on the fixed asset, the depreciation calculation divides equally over the number of remaining terms, or the option is automatically set to 2 - With Lower Amount each year.