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Lease Normalization overview

Landlords
and tenants whose companies are publicly traded need to comply with FASB-13
standards for accounting of leases. According to these rules, companies need to
normalize or calculate the average rent payments/billings over the term of the
lease. These normalized amounts need to be reported as revenue/expense, along
with accrued revenue/liability, so that the investment community can accurately
analyze the company's financials.

Oracle
property manager rent normalization functionality provides you with detailed
monthly deferred liability and accrued asset amounts that can be accessed by
accounting and finance departments to accurately calculate and estimate
company-level revenue and expenses.

Only
those lease payment terms for which the Normalize check box is checked can be
normalized and the total cash amount for these payment terms will be spread
across the lease period

Here
is an example on how normalization functionality works

Lease details

Details

Start Date

End Date

Amount

Frequency

Lease

01-Jan-2016

31-Jan-2016

-

-

Payment Term

01-Jan-2016

30-Jun-2016

30000

Monthly

Normalized
amount is calculated as = Total cash amount for the term / Number of periods in
Lease period

=
30000*6 / 12

=15000


In
the schedule and items program output file, you can see the amounts in the total cash column that will be sent to Payable's, in the normalization cash
column we can see the actual amount for each period that will be normalized. If
a payment term did not have the normalize checkbox checked the amount would be
0.00 in that column for the period in question.

The
calculation of normalized amount depends on many other factors setup for the
lease. For more information on how system calculates the normalized amount
refer document 1342664.1.

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Comments ( 1 )
  • Raj Saturday, December 24, 2016

    Vaishali,

    Nice blog.. clear explanation,

    Thank you.

    Raj.


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