Property Manager Presentation - Compliance With IFRS ACS v1

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7-Aug-17 Copyright 2015, Oracle and/or its affiliates. All rights reserved. | 2
Compliance with IFRS 16 & ASC 842
Oracle Property Manager
Tim Hricko & Samuel Felix

Product Management Team
Oracle Applications Development
July, 2016
7-Aug-17 Copyright 2016, Oracle and/or its affiliates. All rights reserved.
1 Accounting & Reporting Requirements

2 Implementation Strategy
3 Base Case
4 Accounting Events
5 Lease Transactions
6 Resources & Calculations

3 Base Case
4 Accounting Events
New Accounting & Reporting Requirements
US GAAP (ASC842) International GAAP (IFRS 16)
Public companies: Annual periods beginning after All companies: Annual periods
Effective Dates December 15, 2018 (i.e., January 1, 2019 for a calendar beginning after January 1, 2019
year entity), and interim periods within those years
All other companies: Annual periods beginning after
December 15, 2019
Early adoption is permitted on a
retroactive basis, provided IFRS 15,
Early adoption is permitted on a retroactive basis Revenue from Contracts with
Customers is adopted at the same
time
Two Year Look Two year look back reporting is required to report comparative financial results for FY2017 and
Back FY2018
International GAAP (IFRS 16) US GAAP (ASC842)
Impact on Landlord Many aspects of lessor accounting under the new accounting standards
Accounting & Reporting are similar to existing accounting standards.
Impact on Tenant Tenants are required to recognize most leases on their balance sheets as
Accounting & Reporting lease liabilities with corresponding right-of-use assets
Two Models
One Model
Models for Finance & Operating Lease agreements may be classified
All lease agreements are classified
Leases as either operating or finance
as finance leases
leases
IFRS & FAS Finance Leases & IFRS Operating Leases
IFRS 16 ASC 842
Impact
Finance & Operating Lease Operating Lease
Create ROU
BS PV = f(Lease Expense) PV = f(Lease Expense)
Liability
Accrue Interest BS Interest = f(rate * liability*time) Interest = f(rate * liability*time)
Amortization Expense = f(straight-line Amortization Expense = f(straight-line

Amortize ROU BS
ROU) Lease Expense)
Recognize Interest Expense
Recognize Expense P&L Recognize Lease Expense
Recognize ROU Amortization Expense
IFRS & FAS Finance Leases & IFRS Operating Leases
IFRS 16 ASC 842
Impact
Finance & Operating Lease Operating Lease
Create ROU
BS PV = f(Lease Expense) PV = f(Lease Expense)
Liability
Accrue Interest BS Interest = f(rate * liability*time) Interest = f(rate * liability*time)
Amortization Expense = f(straight-line Amortization Expense = f(straight-line

Amortize ROU BS
ROU) Lease Expense)
Recognize Interest Expense
Recognize Expense P&L Recognize Lease Expense
Recognize ROU Amortization Expense

3 Base Case
4 Accounting Events
Two Phased Implementation Strategy
Implement look back reports Implement enhanced functionality

Meet the immediate requirement to Lease data is converted in production
report comparative financial results Comply with accounting standards and
Lease data not changed in production financial reporting requirements
Reports provide data to generate Account for lease events
comparative financial results of Internationally
operations for 2018 & 2019 In U. S.

3 Base Case
4 Accounting Events
Critical Elements of Lease Accounting for Tenants
Two account balances Four schedules (streams)

Right of Use (ROU) Lease payments (cash)
PV of lease payments Applied to reduce liability
Liability Interest accrual
PV of lease payments Applied to increase liability
ROU amortization
Applied to reduce ROU
Lease expense amortization
Amortization of total payments
Critical Elements of Lease Accounting for Tenants
Two account balances Four schedules (streams)

Right of Use (ROU) Lease payments (cash)
PV of lease payments Applied to reduce liability
Liability Interest accrual
Associated to ROU asset Applied to increase liability
IDC & other ROU amortization
Applied to reduce ROU
Lease expense amortization
Amortization of total payments
Accounting Events
Create an ROU Asset and Liability

Pay Rent
Accrue Interest
Amortize ROU
Recognize Lease Expense
Model 1 IASB & FASB Finance Leases & IASB Operating Leases
Base Case Scenario

Create ROU asset & associated liability Annual Payment (C) = 100,000.00
Calculate lease expense Lease Duration = 36 months
Calculate PV of lease expense
Annual Interest Rate (R) = 7%
Apply rent payments to the liability
Days per Month (DM) = 30
Accrue interest expense & liability
Days per Year (DY) = 360
Amortize the ROU straight-line
Present Value Calculation
PV = C / (1+(R/(DY*DM))^(DM/30))
PV = 100,000/(1+(.07/(360*30))^(30/30))
PV = 93,258.35
Base Case Results

Create ROU asset & associated liability
Calculate lease expense (sum of Payments) Date Payments PV
JUL-16 100,000 100,000
JUL-17 100,000 93,259
JUL-18 100,000 86,971
Total 300,000 280,230
Interest Expense = 19,770

Base Case Results

Apply rent payments to the liability Less Plus
Date Liability
Accrue interest expense & liability Payments Interest
JUL-16 280,230 100,000 13,029
JUL-17 193,259 100,000 6,741
JUL-18 100,000 100,000 -
Total 300,000 19,770
Base Case Results

Amortize the ROU straight-line Less
Date ROU
Amortization
JUL-16 280,230 93,410
Note JUL-17 186,820 93,410
Interest Expense & ROU Amortization
Expense are reported on the financial JUL-18 93,410 93,410
statement
Total 280,230
Model 2 - FASB Operating Leases
Base Case Results

Create ROU asset & associated liability
Calculate lease expense Date Payment PV
JUL-16 100,000 100,000
JUL-17 100,000 93,259

Note JUL-18 100,000 86,971
Same calculation of ROU as for the Finance
Lease Total 300,000 280,230
Interest Expense = 19,770

Base Case Results

Amortize lease expense straight-line Lease Less = ROU
Amortized Lease expense = lease expense / Date
Expense Interest Amortization
periods = 100,000/yr
Calculate ROU amortization JUL-17 100,000 13,029 86,971
Amortized ROU = Jul-18 100,000 6,741 93,259
Amortized Lease expense - Interest expense
Jul-19 100,000 - 100,000
Note Total 300,000 19,770 280,230
ROU amortization is not straight-line
Base Case Results

Apply amortization to reduce the ROU Less ROU
asset Date ROU
Amortization
JUL-16 280,230 86,971
JUL-17 193,259 93,259

Note
Lease expense is reported on the JUL-18 100,000 100,000
financial statements, not the ROU
amortization expense Total 280,230
Base Case Results

Apply rent payments to the liability Less Plus
Date Liability
Accrue interest to increase the liability Payment Interest
JUL-16 280,230 100,000 13,029
JUL-17 193,259 100,000 6,741

Note
Same interest expense amount as the JUL-18 100,000 100,000 -
finance Lease
Total 300,000 19,770
Finance Lease & IASB Operating Lease - Amortization of ROU Asset
Date Begin Balance Amortization End Balance
01-JUL-16 280,229.54 7,784.15 272,445.38
01-AUG-16 272,445.38 7,784.15 264,661.23
01-SEP-16 264,661.23 7,784.15 256,877.08
01-OCT-16 256,877.08 7,784.15 249,092.92
01-NOV-16 249,092.92 7,784.15 241,308.77
01-FEB-19 38,920.77 7,784.15 31,136.62

01-MAR-19 31,136.62 7,784.15 23,352.46
01-APR-19 23,352.46 7,784.15 15,568.31
01-MAY-19 15,568.31 7,784.15 7,784.15
01-JUN-19 7,784.15 7,784.15 0.00
Copyright 2015, Oracle and/or its affiliates. All rights reserved. | Oracle Confidential Internal/Restricted/Highly Restricted 25
Finance Lease & IASB Operating Lease Lease Liability
Date Begin Balance Payments Interest Expense End Balance
01-JUL-16 280,229.54 100,000.00 1,051.34 181,280.88
01-AUG-16 181,280.88 0.00 1,057.47 182,338.35
01-SEP-16 182,338.35 0.00 1,063.64 183,401.99
01-OCT-16 183,401.99 0.00 1,069.84 184,471.83
01-NOV-16 184,471.83 0.00 1,076.09 185,547.92
01-FEB-19 0.00 0.00 0.00 0.00

01-MAR-19 0.00 0.00 0.00 0.00
01-APR-19 0.00 0.00 0.00 0.00
01-MAY-19 0.00 0.00 0.00 0.00
01-JUN-19 0.00 0.00 0.00 0.00
FASB Operating Lease - Amortization of ROU Asset
Date Begin Balance Amortization End Balance
01-JUL-16 280,229.54 7,281.99 272,947.54
01-AUG-16 272,947.54 7,275.86 265,671.68
01-SEP-16 265,671.68 7,269.69 258,401.99
01-OCT-16 258,401.99 7,263.49 251,138.50
01-NOV-16 251,138.50 7,257.25 243,881.25
01-FEB-19 41,666.66 8,333.33 33,333.33

01-MAR-19 33,333.33 8,333.33 24,999.99
01-APR-19 24,999.99 8,333.33 16,666.66
01-MAY-19 16,666.66 8,333.33 8,333.33
01-JUN-19 8,333.33 8,333.33 0.00
FASB Operating Lease - Lease Liability
Date Begin Balance Payments Interest Expense End Balance
01-JUL-16 280,229.50 100,000.00 1,051.34 181,280.84
01-AUG-16 181,280.84 0.00 1,057.47 182,338.31
01-SEP-16 182,338.31 0.00 1,063.64 183,401.95
01-OCT-16 183,401.95 0.00 1,069.84 184,471.80
01-NOV-16 184,471.80 0.00 1,076.09 185,547.88
01-FEB-19 0.00 0.00 0.00 0.00

01-MAR-19 0.00 0.00 0.00 0.00
01-APR-19 0.00 0.00 0.00 0.00
01-MAY-19 0.00 0.00 0.00 0.00
01-JUN-19 0.00 0.00 0.00 0.00

3 Base Case
4 Accounting Events
Multi-GAAP Reporting
Not required when finance lease is Multi-GAAP is required when operating
used in US lease is used in US
Company #1 Accounts for leases Company #3 Accounts for leases
Finance Lease in US Operating Lease in US
Finance Lease in UK Finance Lease in UK
No Multi-GAAP Multi-GAAP is required
Company #2 Accounts for leases Company #4 Accounts for leases

Finance Lease in US Operating Lease in US
Operating Lease in UK Operating Lease in UK
No Multi-GAAP Multi-GAAP is required
Accounting Events
Create an ROU Asset and Liability

Pay Rent
Accrue Interest
Amortize ROU
Recognize Lease Expense
Accounting Events
ACCOUNTING BASE CASE IFRS 16 Finance Lease
US Operating Lease
Summary International Operating Lease
Date Event Account DR CR DR CR
01-JAN-2019 Create ROU Asset ROU Asset 280,230 280,230
Create Lease Liability Lease Liability 280,230 280,230
01-JAN-2019 Pay Rent Lease Liability 100,000 100,000
Cash 100,000 100,000
31-DEC-19 Accrue Interest Interest Expense 13,029
Lease Liability 13,029
31-DEC-19 Amortize ROU 93,410
ROU Asset 93,410
Recognize Lease Expense Lease Expense 100,000
ROU Asset 86.971
Accounting Events
ACCOUNTING BASE CASE IFRS 16 Finance Lease
US Operating Lease
Summary International Operating Lease
Date Event Account DR CR DR CR
01-JAN-2019 Create ROU Asset ROU Asset 280,230 280,230
Create Lease Liability Lease Liability 280,230 280,230
01-JAN-2019 Pay Rent Lease Liability 100,000 100,000
Cash 100,000 100,000
31-DEC-19 Accrue Interest Interest Expense 13,029
31-DEC-19 Amortize ROU 93,410
ROU Asset 93,410
Recognize Lease Expense Lease Expense 100,000
ROU Asset 86.971

3 Base Case
4 Accounting Events
Lease Transactions
Lease Life Cycle Transactions

Initial direct cost
Change tenant interest rate
Change payment amount
Change lease termination date
Sublease
Economic incentives
Impairment or abandon space
Free rent
Mergers & acquisitions (M&A)
Lease Transactions
Lease Transactions not planned

Use variable rent to calculate rent payments
FMV
Sale & lease back
Transfer & assumption
Lease Transactions
Initial direct cost

One time payment to a supplier through Property Manager
User decides whether to include payment in Lease Expense
ROU includes the payment to landlord or supplier
Liability to landlord does not include the payment
New liability to the supplier is required
Payment to supplier through Oracle Payables
Rou includes payment to supplier
Payment is created and processed through AP, not Property Manager
Lease Transactions
Change tenant interest rate

Interest change is known at lease creation
Index rate changes
Fixed rate changes
Interest change is not known at lease creation
Recalculate the ROU balance
Adjust the interest expense
Adjust the ROU amortization expense
Lease Transactions
Change payment amount

Payment change is known at lease creation
Calculate Lease expense with irregular payments
Payment change is not known at lease creation
Recalculate the ROU balance based on revised lease expense
Payment change is due to landlords change of interest or other reasons
Lease Transactions
Change lease termination date

Expand the lease term
Adjust the ROU asset balance
Adjust the Liability balance
Contract the lease term (early termination)
Adjust the ROU asset balance
Adjust the Liability balance
Lease Transactions
Sublease
Tenant lease expense is offset by lease revenue
Space is not owned by tenant
Tenant subleases space to other tenants
Lease expense is offset by sublease revenue
Lease Transactions
Economic incentives
Payment to the landlord
Incentive payment is included in Lease Expense
ROU includes the payment
Liability includes the payment
Payment to a supplier
Incentive payment is received from the Landlord
Decrease ROU and Lease liability
Lease Expense & ROU includes the Incentive payment
Incentive payment is received from other parties
Decrease only ROU
Liability to landlord does not include the payment; new liability to the supplier is required
Lease Transactions
Impairment or abandon space

Account for loss
Recalculate the ROU balance based on revised lease expense
Interest expense remains as-is. No impact of impairment
Lease Transactions
Free rent
Payment schedule start date is after the lease commencement date
Calculate Lease expense based on total payments (i.e., no change to current functionality)
Calculate ROU amortization over the lease duration
Calculate interest expense over the lease duration
Lease Transactions
Mergers & acquisitions (M&A)

No plans for development
This is a landlord accounting transaction (i.e., owned property is transferred)
Property Manager does not currently account for capitalized property
This is a significant scope issue if Property Manager handles T&A
Lease Transactions
Use variable rent to calculate rent payment

IFRS 16 & ASC 842 treat variable rent agreements under current tenant accounting
standards
Matching principle in accounting standards applies:
as revenue increases, rent expense increases;
as revenue decreases, rent expense decreases
No change required
Lease Transactions
Fair market value lease

ROU asset cannot be sold
Therefore, ROU has no FMV
Lease Transactions
Sale & lease back

This is a landlord accounting transaction (i.e., there is an intent to own)
This is a significant scope issue if Property Manager handles S&LB
Lease Transactions
Transfer & assumption (T&A)

This is a landlord accounting transaction (i.e., owned property is transferred)
This is a significant scope issue if Property Manager handles T&A
Lease Transactions
Retirement & final adjustments

This is a landlord accounting transaction (i.e., owned property is retired)
This is a significant scope issue if Property Manager handles retirement

3 Base Case
4 Accounting Events

Property Manager Presentation - Compliance With IFRS ACS v1

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Safe Harbor Statement

Tim Hricko & Samuel Felix

1 Accounting & Reporting Requirements

1 Accounting & Reporting Requirements

US GAAP (ASC842) International GAAP (IFRS 16)

International GAAP (IFRS 16) US GAAP (ASC842)

Accrue Interest BS Interest = f(rate * liability*time) Interest = f(rate * liability*time)

Amortization Expense = f(straight-line Amortization Expense = f(straight-line

Accrue Interest BS Interest = f(rate * liability*time) Interest = f(rate * liability*time)

Amortization Expense = f(straight-line Amortization Expense = f(straight-line

1 Accounting & Reporting Requirements

Implement look back reports Implement enhanced functionality

1 Accounting & Reporting Requirements

Two account balances Four schedules (streams)

Two account balances Four schedules (streams)

Create an ROU Asset and Liability

Base Case Scenario

Base Case Results

JUL-17 100,000 93,259

JUL-18 100,000 86,971

Total 300,000 280,230

Interest Expense = 19,770

Base Case Results

JUL-17 193,259 100,000 6,741

JUL-18 100,000 100,000 -

Total 300,000 19,770

Base Case Results

Base Case Results

JUL-17 100,000 93,259

Interest Expense = 19,770

Base Case Results

Base Case Results

JUL-17 193,259 93,259

Base Case Results

JUL-17 193,259 100,000 6,741

01-FEB-19 38,920.77 7,784.15 31,136.62

01-FEB-19 0.00 0.00 0.00 0.00

01-FEB-19 41,666.66 8,333.33 33,333.33

01-FEB-19 0.00 0.00 0.00 0.00

1 Accounting & Reporting Requirements

Company #2 Accounts for leases Company #4 Accounts for leases

Create an ROU Asset and Liability

1 Accounting & Reporting Requirements

Lease Life Cycle Transactions

Lease Transactions not planned

Initial direct cost

Change tenant interest rate

Change payment amount

Change lease termination date

Impairment or abandon space

Mergers & acquisitions (M&A)

Use variable rent to calculate rent payment

Fair market value lease

Sale & lease back

Transfer & assumption (T&A)

Retirement & final adjustments

1 Accounting & Reporting Requirements

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Accrue Interest BS Interest = f(rate * liabilitytime) Interest = f(rate liability*time)

Accrue Interest BS Interest = f(rate * liabilitytime) Interest = f(rate liability*time)