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The Lease liabilities template unwinds and reconciles the lease liability side of each lease recognised in the Leases Data template. For every lease it works out the opening liability, any additions, payments made, interest unwound over the period, and the resulting closing liability, and splits that closing balance between the amount due within one year and the amount due after one year. It is designed to be used together with the Leases Data template, which must be added and populated first, and it complements the ROU assets template, which handles the corresponding right-of-use asset.

Table of contents 

When should I use this template?

Use this template whenever there is a lease liability on the balance sheet arising from a lease recorded in the Leases Data template. A lease that has been assessed as short-term or low-value, where the exemption has been applied, will not have a liability to unwind here.

Before you start

Make sure the Leases Data template has been added to the workflow, is starred, and has the relevant leases entered. In particular, check the commencement and end dates, the discount rate, and either the calculator inputs or the manually entered right-of-use values. This template reads that information directly and shows a prompt if Leases Data is not set up or populated yet.

Background

A lease liability is initially measured at the present value of the future lease payments (calculated in the Leases Data template). After that, the liability increases each period for the interest that unwinds on the outstanding balance, and reduces for the lease payments made. The closing balance is then presented split between the amount due within one year and the amount due after one year, in the same way as any other loan or borrowing, so that the accounts show the short-term and long-term elements of the obligation separately.

Step 1: Review the lease detail pages

Each lease from the Leases Data template gets its own detail section, with a link back to the corresponding lease in Leases Data so you can check or amend the underlying terms. A summary line shows the lease's duration, its opening lease value on recognition, and the amounts due within and after one year, calculated using the annual discount rate entered in Leases Data (converted to a monthly-equivalent rate for the unwinding calculation). If no discount rate has been entered against the lease in Leases Data, a warning appears here and the template is marked as unreconciled until it is added.

Step 2: Check the movement detail for calculator-method leases

For a lease where the right-of-use values were worked out using the ROU values calculator in Leases Data, this template rebuilds the month-by-month movement of the liability for you: the opening liability, any payments due that month (based on the repeating or custom payment schedule, and any other payments and adjustments dated after commencement), the interest unwound at the effective monthly discount rate, and the resulting closing liability. Only the months falling in the current period are shown. Whether interest is calculated on the payment "in advance" or "in arrears" basis is determined automatically from whether payments fall before or after the middle of the month.

Step 3: Complete the movement for manual-method leases

For a lease where the right-of-use values were entered manually in Leases Data, enter directly for the period:

  • Opening liability (only needed for a brand new lease, as this normally rolls forward automatically);
  • Additions (for a new lease recognised part-way through the period);
  • Payments made during the period;
  • Interest unwound during the period;
  • Due within 1 year, the portion of the closing liability due to be settled within the next 12 months.

The closing liability is calculated as the sum of the opening liability, additions, payments and interest unwound, and the amount due after one year is calculated as the closing liability less the amount you have entered as due within one year.

Step 4: Review the leases summary table

The summary table lists every lease with its movement for the period (opening liability, additions, payments, interest unwound, closing liability), the closing liability figure currently posted to the trial balance for comparison, and the split between amounts due within and after one year. Against each lease you select the trial balance account it relates to from the accounts available for lease liabilities, so that each nominal account is matched to one lease. The totals row then reconciles the combined workings against the trial balance for the opening liability, interest unwound, closing liability, and the due-within-1-year and due-after-1-year splits, flagging an unreconciled difference and showing the underlying numbers wherever there is a mismatch.

Step 5: Post the journals (optional)

Three optional journals are available, each shown by ticking its checkbox:

  • Show interest journal posts the difference between the interest unwound per the workings and what is currently posted to the lease interest profit and loss account, balanced against the lease liabilities due within one year account.
  • Show timeframe split journal posts an adjustment to move balances between the due-within-1-year and due-after-1-year lease liability accounts so that they match the split calculated in the workings. If the two differences are not equal and opposite, any residual difference is flagged for you to allocate to an account of your choosing.

If an account has not yet been mapped for any side of these journals, the template tells you which default account code to select.

What flows through to the rest of the accounts/workflow?

This template reconciles the lease liability, both in total and split between amounts due within and after one year, back to the trial balance. The reconciled due-within-1-year and due-after-1-year figures are available to other parts of the accounts production workflow, such as a note or account template that presents the split of borrowings and lease obligations by maturity. It works from the lease terms recorded in the Leases Data template and sits alongside the ROU assets template, which handles the asset side of the same leases.

What rolls forward next year?

For leases using the calculator method, the whole liability unwind is recalculated automatically each period from the underlying lease terms, so there is nothing to roll forward manually. For leases using the manual method, the closing liability carries forward as next period's opening liability. The additions, payments, interest unwound and due-within-1-year figures you enter each period reset to nil, ready to be re-entered for the new period.

Where the data comes from

The lease terms, that is the commencement and end dates, the discount rate, and the calculated or manually entered right-of-use liability, come from the Leases Data template. The accounts available for the closing liability, the due-within-1-year and due-after-1-year splits, and the lease interest expense are trial balance mappings that can be adjusted to match your chart of accounts.

Frequently asked questions

Why is my lease showing as unreconciled?

Most commonly this is because a discount rate has not been entered for the lease in the Leases Data template, or because the trial balance accounts selected in the summary table do not yet match the calculated movement. Check the reconciliation message shown against the relevant total for the specific difference.

Can I choose which trial balance account relates to which lease?

Yes. In the summary table you select the account for each lease from the accounts available for lease liabilities. Once an account has been selected for one lease, it is removed from the choices offered for the others.