There are two ways to treat a sublease.
One is an operative lease and the other one as a finance lease. In a financeial lease agreement, ownership of the property is transferred to the lessee at the end of the lease term. But, in operating lease agreement, the ownership of the property is retained during and after the lease term by the lessor.
In both cases, you need to create agreements separately and the sublease (receiving payment) with a negative value.
Lease types:
Before you start creating sublease agreements, you should create "operational sublease", and "financial sublease" lease types.
1. Operational Sublease
Step by step walkthrough:
If you treat it as an operative lease, the headlease is as it is, we only book the gain coming from sublease straight to P&L as gain. This means that there will be no discounting to the sublease and adjustments to the headlease RoU Asset.
a. Create main lease (IFRS tab on, fixed asset lease amount positive) save and generate lease flow.
b. Create sublease agreement next. (Fixed asset lease amount negative, NO IFRS active) Save and generate lease flow.
(LEASE CHANGES ARE POSSIBLE IN OPERATIONAL SUBLEASE)
2. Financial sublease
Another way is to net the headlease with a sublease discounted value. We will adjust the RoU Asset of the headlease with the discounted value of the sublease. First, you have to create the sublease (in order to get the discounted value of the sublease for the head lease) with a negative payment value, and then clear the lease once, enter that full liability opening value to incentives received box (to make the RoU Asset value to sublease zero). Following the steps mentioned, create the flow again.
After that, you can create the headlease and enter into the RoU Asset incentives received box the sublease liability opening value. The RoU Asset opening for headlease is netted with a sublease liability opening, making the depreciation much smaller because of the netting.
In simple terms, we book the sublease “liability” (negative value) into the receivables in BS. And then, when we receive the payment, we post the interest as interest income into P&L. It is recommended to clearly separate the subleases from all the other agreements so that you don’t mix those in the reporting. For example, this can be done by saving these under separate lease types.
Financial sublease step by step walkthrough:
a. Create sublease with negative fixed asset lease amount with IFRS tab active, and generate lease flow.
b. Copy "lease liability opening balance" from the first dark row. After copying, "clear all", payment schedule will be cleared and then you can insert your copied "lease liability opening balance" to "Rights-of-Use assets incentives received as NEGATIVE" row, save and generate flow again.
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c. Click "copy" to create another agreement for main lease. Your numbers will remain the same as they were in sublease. Change "Fixed asset lease amount" to positive, and also change "incentives received" to positive. Save and generate.
d. You are ready.
(LEASE CHANGE DOES NOT WORK IN FINANCIAL SUBLEASE)