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FASB 13 & Normalizing Payments

Posted on May 2nd, 2014 by Sanjit Anand |Print This Post Print This Post |Email This Post Email This Post

Landlords and tenants whose companies are publicly traded need to comply with FASB-13 standards for accounting of leases.

What is FASB 13?
FASB 13 regulates the accounting standards for office leases in the United States. In effect since 1977, these standards have established how leases are reported on financial statements by both tenants and landlords.

FASB 13 calls for every lease to be classified as either an Operating Lease or a Capital Lease based on specific criteria. As it currently stands, the vast majority of lease transactions are classified as Operating Leases. An Operating Lease is treated as an ongoing operating expense , where a Capital Lease is treated as a financing transaction and should be reported as an asset and liability on a company’s financial statements.

Understanding FASB 13 Standards

The Financial Accounting Standards Board (FASB) controls the accounting standards in the United States to ensure that financial statements are in accordance with Generally Accepted Accounting Principles (GAAP).

FASB 13, which is Ruling 13 from that board, states that the revenue from rent (recurring billings) must be recognized evenly (as a straight line) over the life of the lease. The difference between the straight-line rent that the system calculates for FASB 13 and the actual rent that you bill the tenant (or pay the landlord) must be reflected in the general ledger.

This examples below illustrate the actual rent amount for three years and the effect of FASB 13.

Actual Rent : This table illustrates the actual rent for the lease term January 1, 2012 – December 31, 2014 :

FAB13-1

Effect of FASB 13 : This table illustrates the effect of FASB 13 for the lease term January 1, 2007 – December 31, 2 008:

FAB13-2

Accural/Defferal :*Straight-line rent minus actual rent

To calculate the effect of FASB 13, the system adds the rent amounts for the entire lease term, and then divides the sum by the number of months in the lease term. Then the system subtracts the actual rent from the straight-line rent to determine the amount of the accrual or deferral that must be recorded in the general ledger.

GAAP states that accruals and deferrals must be recognized in the financial statements.

  • A positive difference is an accrual .
    • In above example, you received 15,000 in cash the first year, but you earned 20,000 based on FASB 13.
  • A negative difference is a deferral .
    • In above example, you received 25,000 in cash the third year, but you earned 20,000 based on FASB 13.

what you can see, the net sum of the accruals and deferrals over the life of the lease should be zero.

Understanding the FASB 13 Billing Process (Normalizing Payments) @Oracle Property Manager

As you have observed, 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.

If you have a lease for which payment/billing amounts vary over the lease term, you can use Property Manager to normalize a lease for you and renormalize it if you amend the lease.

Normalization, also known as straight-lining,spreads the cost of rent payments/billings and rent abatements over the life of a lease to more accurately record the lease expense or revenue during the time it was incurred.

Rent normalization is used to comply with FASB-13 standards. Landlords can vary rent amounts over the life of a lease term for the following reasons:

  • Provide an incentive for the lessee
  • Reflect the anticipated effects of inflation
  • Ease the lessee's near term cash flow requirements

Using the rent normalization feature 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 terms for which the Normalize check box is checked can be normalized. Only actual amounts can be specified for normalized terms.

All normalized terms must lie within the lease term.

In other words, the start date of a normalized term cannot be earlier than the lease commencement date, and the normalized payment/billing term end date cannot be later than the lease termination date.

In EBS , When you enter a lease, you check the Normalize check box for a payment, billing, or abatement if you want it to be included in the normalization calculations .

After you finalize and save the lease, Property Manager creates a payment or billing schedule.

In the View Requests window you can then review the payment/billing schedule and the normalized amounts, or you can run the Normalized Rent Schedule Report.

Property Manager transfers revenue and expense distribution lines directly to Oracle General Ledger.

To calculate the average (normalized) amount for a term, Oracle Property Manager adds up all the cash items for that term over the entire lease term, and divides this sum with the number of months between the lease start and end dates.

If the lease starts or ends mid-month, the proration rule specified at the Lease Details level is used to calculate the number of months.

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Oracle Property Manager : API’s availability

Posted on March 29th, 2014 by Sanjit Anand |Print This Post Print This Post |Email This Post Email This Post

With recent Patch 10401569, you can take advantage of using API for Oracle Property Manager. The following APIs are available

  1. Lease creation and updation can be done using APIs.
  2. Index Rent creation and updation can be done using APIs.
  3. Variable Rent creation and updation can be done using APIs.
  4. Workflow, Business events for lease are available.
  5. Client extension for variable rent calculation is available.
  6. API to update the Lease status is present.

You can refer to Irep for more details.

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AutoCAD – Oracle Property Manager Interaction

Posted on May 1st, 2012 by Sanjit Anand |Print This Post Print This Post |Email This Post Email This Post

Do you know, companies with a significant number of properties under management should make use of a Computer Aided Design (CAD) or Computer-assisted facilities management (CAFM) applications to hold engineering drawings of their buildings.These systems will know the floor space of each unit. The salient information from these drawings can be extracted and uploaded directly to Oracle Property Manager. Modified data can be exported from Oracle to update the CAD/CAFM databases.

Transfering information between Property Manager and CAFM applications..

You can transfer information between Property Manager and CAFM applications by exporting and importing information through Oracle's Space Open Interface
Tables.

If the data in your CAD or CAFM application follows BOMA standards for space measurement, no special implementation procedures are required.

If your CAD data follows Internation Facilities Management Association (IFMA) standards, you can set up Property Manager at the time of implementation to import your CAD data.

The export and import processes initiate a concurrent process in Property Manager. When the process completes you can access the information in either Property Manager or the CAFM application.

  • Export to CAD Interface :Use the Export to CAD Interface concurrent program to export location or space assignment information from Oracle Property Manager to computer-assisted design (CAD) or computer-assisted facilities management (CAFM) applications
  • Import from CAD Interface :Use the Import from CAD concurrent program to import employee space assignment entries or location records into Oracle Property Manager.

More Details

  • CAD Integration [Note# 1373463.1]
  • Oracle Property Manager FAQ for CAD/CAFM [Note# 164290.1]

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Overview : Oracle Property Manager

Posted on April 29th, 2011 by Sanjit Anand |Print This Post Print This Post |Email This Post Email This Post

Oracle Property Manager streamlines and automates lease administration and space management, enabling you to more intelligently manage your real estate portfolio. Whether you are a corporate, commercial, or retail/ franchise operation.

Oracle Property Manager is part of the Oracle E-Business Suite, and is configured out of the box to fully integrate with the Oracle Financials suite.

Oracle Property Manager Functionality automates the full life cycle of a lease as follows:

  • Lease Abstraction and Execution:
  • Flexibility to capture unique aspects of properties down to room and office level.
  • Milestone Management:
  • Workflow monitoring of critical dates assures compliance and execution of negotiated terms, conditions, and obligations.
  • Transaction Processing and Rent Calculation:
  • Calculate, create, and process payable and receivable transactions. (out of box integration with ERP)
  • Space Definition and Space Assignment
  • Analyze and react to underutilized space. Integration with Computer Aided Design systems (CAD) for virtual space management.

Process Flow

The following list ( Fig 1) is a typical sequence of events that you might follow to abstract a lease in Oracle Property Manager:

  • Set up service providers, and define locations, regions and office parks, milestones, and reporting currencies.
  • Abstract the lease. (Later, amend and edit it as needed).
  • Assign employees to office space. (Later, move and reassign the employees as needed).
  • Authorize payment and billing schedules.
  • Export payments to Oracle Payables.
  • Export bills to Oracle Receivables.
  • Review online inquiries and/or produce reports.

Oracle property manager flow

Key Benefits:

  • Improve Process Controls
  • Reduce Capital Spend
  • Minimise Occupancy Costs
  • Maximise Space Utilisation
  • Lower TCO

Integration

Oracle Property Manager is integrated with other Oracle applications, including:

  • Oracle General Ledger
  • Oracle Subledger Accounting
  • Oracle Payables
  • Oracle Receivables
  • Oracle E-Business Tax
  • Oracle Human Resources
  • Oracle Enterprise Asset Management
  • Oracle Alert
  • Oracle Workflow
  • Oracle Projects

Oracle Property Manager also interfaces with third party applications, such as CAD and CAFM applications.

Property Management is of interest to any organization that wants to maximize its return on real property.

Companies that own or lease real estate can allocate the cost of ownership to the employees or cost centers that use the space. Companies that lease their property portfolios to tenants can—with minimal administration burden—record their leases, schedule payments for rent and service charges, and recover rent owed.

Next Post , we will take more deep dive on some more topics and Integeration with CAD and CAFM applications.

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