---
title: "Creating and Configuring Contract Components"
description: "‘Contract components’ are individual elements of a leasing contract. Each component enables the precise recording and management of different lease terms, conditions and properties of individual underlying assets within the same leasing contract."
source_url: https://support.lucanet.cloud/en/documentation/lease-accounting/data-collection/create-configure-contract-components
language: en
last_updated: 2023-08-16
---
# Creating and Configuring Contract Components

## Overview

**Contract components** are individual **elements** of a lease contract. Each component enables the precise recording and management of different lease terms, conditions and properties of **individual underlying assets** within the same lease contract.

This **modular approach** to recording components offers a high degree of **flexibility** in accounting for your leases and takes into account the complexity of modern lease contracts.

You can **create** and **configure** contract components in the **Contract components** workspace. You can also **modify** contract components that have already been calculated.

{% warning-box %}
Lucanet Lease Accounting can **only** be used for accounting of **regular leases** in accordance with **[IFRS 16.3-4](https://support.lucanet.cloud/en/documentation/glossary.md#ifrs-16)**. **Short-term** and **low-value** leases are therefore **not** included in the calculation.

As such, we recommend only using this software to record leases that are categorized as **regular** per IFRS 16.3-4.
{% /warning-box %}

## 'Contract Components' Workspace

In the **Contract components** workspace, you can display all components that have already been created for a contract.

- Select the corresponding **contract number**. To restrict the selection of contract numbers to one **lessor**, you can first select the corresponding **lessor**.
- Use the **Active** and **Archived** buttons if you only want to see active or archived components:

The 'Contract components' workspace

## Creating Contract Components

To create a new component for a contract, select the **contract number** in the upper area and click **Add component**.

In the displayed **New contract component** dialog, configure the options as described in the next chapter.

## Configuring Contract Components

When configuring a contract component, the following options are available:

{% info-box %}
- Fields marked with a \* are mandatory fields. The number of mandatory fields on each tab and how many have already been filled in is displayed next to the name of the tab:

- Fields that have been grayed out cannot be edited. They are filled in automatically based on the information in Lease Accounting.
{% /info-box %}

### Lease Identification

'Leasing identification' tab

#### Is there an identified asset?

Specify whether the contract component is an asset that is identified in accordance with IFRS 16.3-4.

#### Does the lessee have the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use?

Specify whether the lessee derives substantially all of the economic benefit of the asset during its useful life.

{% info-box %}
Economic benefits can be fixed, consumption-independent payments, such as fixed basic rents.
{% /info-box %}

#### Who has the right to direct how and for what purpose the asset is used throughout the period of use?

Specify whether the **lessee (CUSTOMER)**, the **lessor (SUPPLIER)**, or **neither** party **(NEITHER)** makes the decisions about the nature and purpose of the use of the asset.

If you select **NEITHER**, use the additional questions to specify whether:

- The lessee has the right to operate the asset throughout the period of use, without the lessor having the right to change those operating instructions.
- The lessee designed the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use?

{% info-box %}
In some cases the relevant decisions about how and for what purpose the asset is used are predetermined. For example, the lessee has the right to direct how and for what purpose the asset is used if he

- is able to transform a building originally used for administrative purposes into a production building.
- is able to use a vehicle originally used in Germany autonomously in a foreign country.
- decides about the produced parts.
{% /info-box %}

#### Lease identification

Based on the information you enter on this tab, this is where the system automatically displays whether the component is identified as a leasing component.

{% warning-box %}
If the component is identified here as a **non-lease component**, you can cancel the recording of the components, as the component does not then have to be accounted for in accordance with [IFRS 16](https://support.lucanet.cloud/en/documentation/glossary.md#ifrs-16).
{% /warning-box %}

### General Information

‘General Information’ Tab

| Option | Description |
|---------|---------|
| External contract number or ID | Displays the number of the contract to which you have assigned the component. |
| Component number or ID | Identification number for the component |
| Cost center | Cost center for the component |
| Start date | Start date of utilization of the related component |
| End date | End date of utilization of the related component without considering extension and/or termination options |
| Component currency | Currency in which the component should be calculated. By default, the functional currency of the selected reporting entity (lessee) is displayed. |
| Comments | Optional comments on the details configured on this tab |

### Underlying Asset

'Underlying asset' tab

#### Asset class

Asset class of the component

#### Does the lease agreement contain a purchase option?

Specify whether a purchase option has been agreed for the component.

If **Yes**, configure the details of the purchase option(s) by clicking **Add row** in the table that appears and specifying the following:

'Add purchase option' dialog

#### Useful life of the underlying asset (in months)

Period during which an asset is available for use by the company

#### Manual entry of interest rates

Enable this option to manually enter a new interest rate in the field **Incremental borrowing rate in percent**, which will override the value defined during the [interest rate creation](https://support.lucanet.cloud/en/documentation/lease-accounting/basic-configuration-lease-accounting/manage-interest-rates.md), if any interest rates were configured.

{% info-box %}
You can still enable or disable manual entry of interest rates during the [modification of contract components](#contractmodification), specifically for the following **modification parameters**:

- Lease term | Extension option/Termination option (if **reasonably certain** option is activated)
- Payments | Payments
- Asset information | Purchase option (if **reasonably certain** option is activated)
- General information | Base lease term | Contract term reduction/extension
{% /info-box %}

#### Incremental borrowing rate in percent (e.g. 5.00)

- When **Manual entry of interest rates** is deactivated: This field is automatically populated with the pre-configured interest rate specific to the selected asset class, if an interest rate was set. If no interest rate was set, the field will remain empty or display 0.
- When **Manual entry of interest rates** is activated: This field is left empty, and you need to manually enter an interest rate. The manually entered rate will override the interest rate derived from the [interest rate configuration](https://support.lucanet.cloud/en/documentation/lease-accounting/basic-configuration-lease-accounting/manage-interest-rates.md).

{% info-box %}
The lease liability is measured on initial recognition at the present value of future lease payments. For this, the future lease payments are discounted with the incremental borrowing rate of the reporting entity. The incremental borrowing rate is the interest rate that the reporting entity would have agreed to inception date of the lease, if it had to borrow funds for the same period for the purchase of the leased property.
{% /info-box %}

#### Does the contract contain any asset retirement obligations?

Specify whether the contract contains any asset retirement obligations.

If yes, enter the present value of the amount of the obligation (in component currency).

#### Comments

Optional comments on the details configured on this tab

### Lease Term

'Lease term' tab

#### Does the contract contain an extension option?

Specify whether an extension option has been agreed for the component.

If **Yes**, configure the details of the extension option(s) by clicking **Add row** in the table that appears and specifying the following:

'Add extension option' dialog

- **Start and end date** of the extension option(s)
- Whether the exercise of the extension option is **reasonably certain**
- The following **payment details** for each individual extension option that was created by **adding a row**:

**{% u %}For single payments for an extension option{% /u %}**

Create single payment

**{% u %}For regular payments for an extension option{% /u %}**

Create regular payment

{% info-box %}
A detailed description of the individual fields that are configured in the **Create payment** dialog can be found in the description of the [Payments](https://support.lucanet.cloud/en/documentation/lease-accounting/data-collection/create-configure-contract-components/.md#payment) tab.
{% /info-box %}

#### Does the contract contain a termination option?

Specify whether a termination option has been agreed for the component.

If **Yes**, configure the details of the termination option(s) by clicking **Add row** in the table that appears and specifying the following:

'Add Termination option' dialog

#### Comments

Optional comments on the details configured on this tab

### Payments

'Payments' tab

Add the individual payments for the lease component by clicking **Add row** and specifying the following:

**{% u %}For single payments{% /u %}**

Create single payment

#### Regular payment

Specifies whether the payment is a regular payment or a single payment.

For a single payment, choose **No**.

#### Description

Description for the payment.

**Examples for real estate**: basic rent; prepayment operating expenses; rent for 1st floor, etc.

#### Payment amount in component currency

Amount entered in the contract for the payment (in component currency)

#### Payment date of the single payment

Time agreed for the single payment

#### Option

Description

#### Regular payment

Specifies whether the payment is a regular payment or a single payment.

For a regular payment, choose **Yes**.

#### Description

Description for the payment.

**Examples for real estate**: basic rent; prepayment operating expenses; rent for 1st floor, etc.

#### Payment amount in component currency

Amount entered in the contract for the payment (in component currency)

#### Type of regular payment

Specifies whether the payment is a **fixed payment** or a **variable payment**.

#### Start and end dates of payments

First and last dates of the payments

{% info-box %}
The start and end dates of the payments define the interval for a series of payments in Lease Accounting in order to represent contract-specific payment terms. The start and end dates of payments may differ from the start and end of the contract.
{% /info-box %}

#### Payment pattern

Choose whether payment is made **yearly**, **half-yearly**, **quarterly**, or **monthly**.

#### Are the payments made in advance?

Specifies whether the payments are in advance, i.e. that the payments must be made at the beginning of the period.

#### Start month of the first complete period of regular payments

Month in which the first full regular payment is made (in format MM-DD)

**Examples:**

- Calendar month payments in arrears
- Start of component term: 13 March 2022\
\
I.e. the first full payment for a whole calendar month takes place in April. The **start date of the first full period of regular payments is therefore** (MM-TT): **04-01**

{% info-box %}
If terms of payment cause regular payments to be scheduled at dates outside the defined component term, please set up those specific payments as single payments using the respective part of the payment dialog. The Lease Accounting validation will not consider regular payments scheduled for dates outside the defined component term.
{% /info-box %}

**{% u %}For regular payments{% /u %}**

Create regular payment

### Residual Value Guarantees

'Residual value guarantees' tab

#### Does the contract contain a residual value guarantee?

Specify whether a residual value guarantee has been agreed for the component.

If **Yes**, configure the details of the residual value guarantee by entering the following in the displayed fields:

- **Amount of guaranteed residual value**
- **Amount expected to be payable under the residual value guarantee**

#### Comments

Optional comments on the details configured on this tab

### Additional Payments

'Additional payments' tab

#### Have initial direct costs been incurred?

Specify whether initial direct costs have been incurred.

If **Yes**, also specify the **Total amount of initial direct costs:** (in component currency).

#### Are lease incentives agreed in the contract?

Indicate whether incentive payments by the lessor have been agreed in the contract.

If yes, specify the following:

- The **Total amount of lease incentives received (in component currency)**
- The **Amount of lease incentives to be received | lease incentive receivable**
- The **Payment date of lease incentives to be received**

#### Comments

Optional comments on the details configured on this tab

### Migration

'Migration' tab

#### Is the component a migration component?

Specify whether this is a component that has already been accounted for in accordance with IFRS 16 and is now being migrated to Lucanet Lease Accounting.

If **Yes**, also specify the following details that will change when migrating to Lucanet Lease Accounting:

- **Deviating interest rate in percent**
- **Deviating start value of the historical cost (in component currency)**
- **Deviating start value of the cumulated depreciation (in component currency)**
- **Net liability before application of Lease Accounting (in component currency)**
- **Migration date**

#### Comments

Optional comments on the details configured on this tab

### Transition

'Transition' tab

#### Is the component a transition component?

Specify whether this is a transition component, i.e. a component for which **IFRS 16 is being applied for the first time**.

If **Yes**, also differentiate between:

- Whether it is an **operating lease** or a **finance lease**
- Whether it is a **provision for onerous leases** or an **impairment**

Then configure the fields that are displayed based on the selection made.

**{% u %}Example configurations{% /u %}**

**Finance Lease**

Configuration example: finance lease

**Operating lease with provision for onerous leases**

Configuration example: operating lease

#### Comments

Optional comments on the details configured on this tab

## Modifying Contract Components

Components that have not yet been calculated can be edited by clicking the pencil icon and editing the tabs as described above under _Configuring Contract Components_.

If components have [already been calculated](https://support.lucanet.cloud/en/documentation/lease-accounting/measurement.md), the fields of the tabs cannot be edited. Instead, the components must be modified as described below.

To modify a contract component that has already been calculated:

{% stepper %}
{% stepper-step %}
In the overview table, click the brush icon in the row of the desired component. The detail view of the components is displayed as follows, for example:

Modify component

{% /stepper-step %}
{% stepper-step %}
Open the [modification parameters](https://support.lucanet.cloud/en/documentation/lease-accounting/data-collection/create-configure-contract-components/.md#modification-parameters) and select the change you want to implement by navigating through the displayed drop-down menu. For example, to add an extension option, select **Lease Term | Extension Option | Add**:

Add extension option

{% /stepper-step %}
{% stepper-step %}
Configure the data in the displayed configuration dialog. (A description of the required information can be found in the previous _Configuring Contract Component_ section.)
{% /stepper-step %}
{% stepper-step %}
In each configuration dialog, specify the **effective date** from which the modification is to be included in the calculation.
{% /stepper-step %}
{% stepper-step %}
Click **Save**.

 The last modification made is displayed in the overview table in the **Status** column:

Modified component

{% /stepper-step %}
{% stepper-step %}
If applicable, click the modification in the **Status** column to display the **modification history** of the component:

Modification history of a component

{% /stepper-step %}
{% /stepper %}
{% warning-box %}
For a modified component to be taken into account in **postings**, you must **calculate and save** the components as described under [Measuring Data](https://support.lucanet.cloud/en/documentation/lease-accounting/measurement.md).
{% /warning-box %}

### Modification Parameters

Components that have been calculated can be modified through modification parameters. The following modification parameters are available:

#### Asset information

- Purchase option
- Change to the useful life of the asset
- Proportional scope reduction
- Impairment
- Add/Edit Asset retirement obligation

#### Lease term

- Extension option
- Termination option

#### Payments

- Payments

#### General information

- Base lease term
- Cost center

#### Residual value guarantee

- Reassess or add a residual value guarantee
- Reassess or add an expected payment