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Medical College of
Georgia Administrative Policies and Procedures
Office of Primary Responsibility:
Controller’s Division /
Financial Accounting
No. 1.2.21
Capital Leases
1.0 Purpose
To set forth procedures and instructions for setting up and processing
capital leases.
2.0 Policy
The Capital Asset Guide for University System of Georgia lists the criteria for
capital leases. If determined to be a capital lease, the following procedures
will be used to process the capital lease.
3.0 Procedure
3.1 Responsibility: User
Forward a signed copy of all leases to the Materials Management Department
immediately upon execution of the lease.
3.2 Responsibility: Materials Management Department
3.2.1 Materials Management will review the
documentation and determine whether the lease is or is not a capital lease
based on the criteria listed in the Capital Asset Guide for University
System of Georgia. If determined to be a capital lease, the appropriate
information will be added to the Lease and Rental Contracts spreadsheet
maintained in the Materials Management Department. Lease payments will be
split between the principal and interest accounts (accounts 818100 and
818200 respectively).
NOTE: Prior to fiscal year 2005,
if the lease is for a flat rate and the vendor indicates there is no
interest expense included in the monthly payment, the entire payment amount
will be booked to the principal account (account 818100). Incidental
expenses such as a one-time delivery/setup charge will be expensed in the
current year.
NOTE: As required by the State
Auditors, from fiscal year 2005 forward, all leases must have an interest
rate so that an amortization schedule can be prepared if one is not provided
by the vendor. If the vendor cannot provide an amortization schedule OR an
interest rate, then MCG will not enter into a lease with that vendor.
NOTE: No lease will be set
up in the system without prior approval from the Controller or Assistant
Controller for Financial Accounting and Reporting.
3.2.2 An updated copy of the lease spreadsheet
and a copy of the lease will be provided to the Controller/Assistant
Controller for Financial Accounting and Reporting for review and approval.
Documentation provided to Financial Accounting should include paperwork that
is available to indicate the total lease liability (amount of monthly
payment x number of payments and, if applicable, any other charges that are
part of the total liability for the lease), and must also include the
interest rate and amortization schedule.
3.2.3 Once approval is obtained from the
Controller/Assistant Controller for Financial Accounting and Reporting,
Materials Management will be responsible for setting the lease up in the
system.
3.2.4 The purchase order (PO) will be
established with a principal and interest line for each month and identified
numerically in agreement with the amortization schedule. For example;
principal and interest line would each indicate month 1 principal, month 1
interest, month 2 principal, month 2 interest, and so forth.
3.2.5 If leases are renewed/extended,
appropriate supporting documentation should be provided immediately to the
Financial Accounting Division.
3.2.6 The Property Control Officer should be
notified of the lease liability and any other appropriate information
immediately in order to add the asset to the AM Module.
3.3 Responsibility: Financial Accounting Division
3.3.1 A notebook of current leases will be
maintained. This will facilitate the monitoring of monthly payments to
insure payments are made on schedule and correct amounts
are posted to the principal and interest expense accounts. Total
principal, as indicated on the amortization schedule for each month, will
never change. Therefore, if there are rounding adjustments necessary to tie
to the total lease liability for each fiscal year, interest expense will be
adjusted.
3.3.2 A copy of the amortization schedule will
be provided to Accounts Payable immediately.
At month-end closing:
- Lease liability and payment amounts will be reconciled/verified to
the lease schedule.
- A spreadsheet will be maintained for each lease with the monthly
payments due during the fiscal year.
- The liability amount as well as the principal and interest expense
accounts will be reconciled to the total lease payments due each month.
Any exceptions will be documented.
- The spreadsheet for each month, with the queries of the various
accounts attached, will be signed off to indicate leases have been
reconciled for the month.
At fiscal year end:
- The summary spreadsheet compiling all capital lease
activity—payments, additions and/or adjustments—will be
prepared/updated. The lease spreadsheet will be used to track the
activity on each lease from inception to completion. The lease
spreadsheet will also be used to reflect the fiscal year payments on
each lease. Total lease payments per spreadsheet will be tied to total
principal and interest booked in accounts 818100 and 818200.
- This will be documented by attaching a query of the two accounts.
- Any remaining lease payments at year-end (net of interest) will be
shown on the lease spreadsheet by fiscal year in order to facilitate the
preparation of the lease note to the financial statements.
- Any payments due within one year or less will be considered current
lease liability (account 219400). Any payments due more than one year
from fiscal year end will be considered long-term lease liability, and
an entry will be made to move that portion of the liability to the
appropriate account (account 291100).
- This will be documented by attaching a query of the two lease
liability accounts.
- If leases are renewed/extended, appropriate supporting documentation
should be maintained with the original lease and reflected on the lease
schedule.
- A copy of the renewal/extension should be provided to Accounts
Payable in a timely manner.
- As leases are completed, they should be marked finalized.
- All documentation should be maintained until an audit for the fiscal
year has been performed. At that time, the documentation can be removed
from the lease notebook and maintained in the files.
Each year prior to the preparation of the financial statements and notes:
- The lease spreadsheet and all supporting documentation will be
reviewed for correctness. The current and long-term liability, as
calculated on the spreadsheet, should tie directly to the amounts booked
in the current and long-term liability accounts.
- Lease payments for the current fiscal year will be reviewed and
should tie to the amounts booked in the principal and interest expense
accounts.
- The above information will be used to document/verify/support leases
on the Capital Assets Footnote.
Prior to arrival of the state auditors:
The following information will be compiled to provide to the auditors:
- A copy of the summary spreadsheet
- Copies of any new leases, renewals or extensions entered into during
fiscal year under audit
- Queries to document the amounts booked in the liability, principal
and interest accounts.
3.4 Responsibility: Accounts Payable
3.4.1 Financial Accounting will provide an
amortization schedule to Accounts Payable personnel responsible for making
monthly lease payments upon inception of every lease. Financial Accounting
will also inform AP of any lease renewals or extensions.
3.4.2 The documentation of each lease furnished
to Accounts Payable will be used to verify monthly lease payments to the
vendor to ensure the correct amount is paid, the payments are on schedule
and the proper amount is booked in the principal and interest accounts.
NOTE: Any exceptions should be
fully documented (e.g., any extra amounts paid for additional copies, etc.)
to aid in reconciling payments on the lease schedule.
3.4.3 Additional charges should be booked in a
supplies account.
3.4.4 Accounts Payable personnel will be
responsible for informing and providing supporting documentation of any
exceptions immediately to Financial Accounting.
3.4.5 Accounts Payable will be responsible for
ensuring that monthly payments are made on time.
Date: 15
June 2005 | Rev. No:
NEW | Rev. Date: | No. 1.2.21 |