SAP Knowledge Base Article - Public

# 3503999- Lease Valuation Cash Flow Report - How to calculate a RoU Asset Opening value/ Lease Contract Lease Liability Opening Balance

### Symptom

The Lease Contract Valuation Cash Flow report calculates an unexpected ROU opening balance/Lease Opening Balance for a lease contract.

To calculate the lease contract's present value (PV) you applied the discounted cash flow formula. The resulting lease liability amount/ ROU opening balance is different to the mentioned amounts displayed in the cash flow report.

### Reproducing the Issue

Lease Contract ABC

 Start Date: 01.01.YYYY End  Date: 31.12.YYYY Lease Term in Month: 12 Interest: 5% Lease Installments: 1000,00 LC (Local Currency) Recurrence: Once, every month Payment Form: In Arrears

Apply the discounted cash flow formula: Payment / (1 + Interest Rate):

For each period you calculate a lease liability of 952,38 LC: 1000,00 LC / (1+0.05), resulting in a total lease liability/ ROU opening balance of 11.428,56 LC (952,38 LC x 12).

However, the lease contract cash flow report calculates a different ROU opening balance: 11.685,32 LC. You wonder about the formula behind this value.

### Cause

1. Act/360:

In SAP Business ByDesign the net present value, interest and depreciation are calculated daily based on the actual/360 day count convention, using the actual number of days in a month and 360 days in a year to calculate interest payments.

Example:

Period 1: 01.01.YYYY to 31.01.YYYY:

Number of days 30.

Act/360: 0,083333 (30/360).

2. Compound Interest Calculation - Discount Factor Calculation:

The formula for discounting and interest calculation uses compound interest (exponential interest calculation): PV= Payment x Discount Factor (DF).

The easiest way to calculate the discount factor is by applying the following formula in MS Excel:

DF= 1/POWER((1+interest rate),number of days/360).

Example:

Interest rate: 5%, i.e. 0,05

Month: from 01.01.2024 to 31.01.2024: 30 days

DF= 1/POWER((1+0.05),30/360)= 0.995942407

3. Present Value - Lease Liability - ROU Opening Balance Calculation (at its simplest form, not regarding additional service charges, initial cost etc.) :

To calculate the present value/the lease liability opening balance on which the ROU opening balance is based on use the following formula in MS Excel:

PV=ROUND(Payment amount*DF),number of digits)*

*Use the ROUND formula according to the decimal places of the used currency (for example, enter 0 for JPY, which uses no decimal places; enter 2 for EUR which uses 2 decimal places).

### Resolution

To calculate the ROU opening balance use MS Excel and apply the formulas as above/below:

• Days: =days(due date,01/01/YYYY)
• act/360: days/360
• Discount Factor: 1/POWER((1+interest rate),number of days/360)
• PV/ROU opening balance: ROUND(Payment amount*DF),number of digits)
 Due Date Number of Days act/360 Interest rate Discount factor Payment Amount PV 01/01/YYYY 0 0 0.00 0 0 0 31/01/YYYY 30 0.083333333 0.05 0.995942407 1000 995.94 29/02/YYYY 59 0.163888889 0.05 0.992035718 1000 992.04 31/03/YYYY 90 0.25 0.05 0.987876547 1000 987.88 30/04/YYYY 120 0.333333333 0.05 0.983868147 1000 983.87 31/05/YYYY 151 0.419444444 0.05 0.979743219 1000 979.74 30/06/YYYY 181 0.502777778 0.05 0.97576782 1000 975.77 31/07/YYYY 212 0.588888889 0.05 0.971676853 1000 971.68 31/08/YYYY 243 0.675 0.05 0.967603038 1000 967.6 30/09/YYYY 273 0.758333333 0.05 0.963676899 1000 963.68 31/10/YYYY 304 0.844444444 0.05 0.959636624 1000 959.64 30/11/YYYY 334 0.927777778 0.05 0.955742809 1000 955.74 31/12/YYYY 365 1.013888889 0.05 0.951735798 1000 951.74 SUM/MROU/Lease Liabilty  Opening Balance 11685.32