Contract Modification - Adding Equipment

Contract Modification - Adding Equipment

Midterm Contract Modification – Asset Addition

A typical midterm contract modification would be required in the event a customer would like to add accessories or additional equipment to the lease.

Before you begin any modification, you need to identify exactly what it is that you will be accomplishing during this

modification.  You should review the last invoice posted, if there are any open invoices,  what the due dates area  on the open invoices, the last date income was accrued and what the date of your modification will be.  You also need to determine which  payment will have the higher payment for the new asset included on it.

This will help you determine if any invoices need to be credited and if you would like any income accrued during the

modification. In the example listed below, invoices have been created and paid through June 1, 2016 and income is accrued through June 30, 2016.

Contract Explorer, Main, Payment Schedule and Accounting Tab Screen Shots

You can also see that this is a finance lease and there are 3 assets currently on this lease.  The main screen, payment schedule

screen, billing and accounting screens are shown below for information only.

Also, if you review the equipment detail you can see the yield is 5% for each asset, so that will be the rate that we enter on the new

e quipment that we will be adding, to keep the rate consistent after the new equipment is added.

Since we are going to add an asset, we need to determine the date of the modification and the first invoice that will be billed at the

higher payment amount.  In this case, we would like to increase the payment with the July 1, 2016 payment and keep the same rate on the contract.  

We will begin the modification process by going into Contract Explorer, Equipment, choosing a rewrite type of Contract

Modification , an Effective Date of 06/30/2016, so we will not accrue any income during this modification and by choosing a reason code.  The reasons are maintained under the Administration menu, System Setup, Codes and Types, Reason Codes.

We will click on the new icon, enter an equipment type of construction, equipment description of Equipment 4, a current basis of

$200,000 that also populates the fields of Fair Market Value, List Price, a nd Original Cost.  
We will ente r 10% in the Cur Residual field, which populates residual dollars of $20,000.  
When we e nter the Yield of 5%, the payme nt amount and rate factor fields populate.  
Since this is a finance lease, there would be no book or tax depreciation to add.  
The location would typically be reviewed to make sure that the asset location and the bill to location are accurate.

When all the data has been reviewed and is correct, then you would click on the feather to post the modification, review the journal

entry for accuracy and click on OK to post and complete the modification .

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