Reducing the physical scope of a lease contract
In Planon you can physically reduce the extent of a lease contract (reduce scope). For example: if the floor area of a lease is reduced by 40% as of the first of the next month, the lease can be adjusted accordingly. The monthly lease payments are decreased and based on the reduced floor area, lease liability and right-of-use asset are recalculated and reduced proportionally.
Please note the following:
• The 'Reduce scope' feature is only available for:
◦ IFRS16 finance leases - lessee only
◦ ASC842 long-term (>1 year) operating leases and finance leases
• The 'Reduce scope' feature is not supported when using multiple accounting standards.
• You can only perform a 'reduce scope' per the first of an accounting period.
You can reduce the scope of a lease as of the start date of an accounting period, regardless of whether it is in the middle of a payment period. In this case, the lease payment is split into two parts:
• the original amount before the scope reduction
• the reduced amount after the scope reduction
After scope reduction, Planon automatically calculates a refund of (part of) the lease payment. This refund is registered as a change in the right-of-use after the scope reduction.
Planon will process the scope reduction of a lease as follows:
A. Decrease the carrying amount of the right-of-use asset to reflect the partial termination of the lease for lease modifications that decrease the scope of the lease.
B. Remeasure the lease liability by discounting the revised lease payments using a revised discount rate. (See Performing a remeasurement).
To register a scope reduction in Planon:
1. At the Contracts selection level, select the contract for which you want to reduce the scope.
2. Go to .
3. Select the required lease contract line(s).
4. On the action menu, click Reduce scope. The Enter values window is displayed.
5. In the Physical extent 'Y' / End date 'N'? field, click Yes. This implies that you are reducing the physical extent.
6. In the Add modification on field, specify the date on which the change is to become effective.
7. In the Physical extent field, specify the new value.
8. Click OK to confirm.
 | You cannot undo a scope reduction. The Undo life cycle changes action is not available. |
After you have confirmed the date effective and new physical extent, Planon:
◦ calculates the proportional right-of-use decrease, based on the open right-of-use at the moment of the scope reduction and based on the reduction percentage.
◦ calculates the proportional liability decrease, based on the open liability at the moment of the scope reduction and based on the reduction percentage.
◦ calculates the difference between the proportionally calculated liability and right-of-use. This amount is registered as gain or loss.
◦ starting from the Add modification on date, Planon recalculated all amounts on the contract line to reduce them according to the reduction percentage.
◦ recalculates the remaining lease period based on the latest amounts and current discount rate.
◦ generates an accounting commitment of the type RS, Reduced scope (see Accounting commitment types).
◦ generates the correct postings (see Generating postings).
◦ registers a financial event with the code QUANT_DECR (see Financial event registration).
| | • Planon has now completed the calculations based on the scope reduction (see Step A). • You can now continue to revise your payments and discount rate (see Step B). Before you continue with Step B, you should adjust the payments as agreed by the contracting parties as from the Add modification on date. • Note that this does not work if the contract line is linked to a reasonably certain renewal option and the renewal option fields (New amount at renewal or Offset amount at renewal) have a value. • If you decreased the scope of an ASC 842 contract, the depreciation method changes from 'Annuity' to 'Straight-lined', starting at the moment the change is effective. |