Firstly what is a sublease? As defined by ASC 842-20-35-14
If the nature of a sublease is such that the original lessee is not relieved of the primary obligation under the original lease
A sublease is a transaction for which an underlying asset is re-leased by a lessee (‘intermediate lessor’) to a third party, and the lease (‘head lease’) between the head lessor and lessee remains in effect.
In other-words, the lessee also becomes a lessor. To account for a sublease in Cradle, here are the following steps.
Create a lessor lease: Select "+ New Agreement" select your role as Lessor. This is to account for the portion of the right of use asset that has been leased out.
2. Select the lease classification (operating/direct finance or sales-type) and onboard the lease.
At this stage, you will have two leases on-boarded:
One lease as the lessee
One lease as the lessor
You are now ready to link the two leases. To do this, you will
a) select the lease you are the lessee of that you have subsequently subleased
b) select Modifications and then + Add New Modification
c) In the modifications modal window, select Add Sublease
This will result in the following screen:
Items to note:
There is no impact on the lease liability from a lessee's perspective.
If the sublease is classified as a direct finance or sales-type lease, the lessee de-recognizes the right-of-use asset relating to the lease that it transfers to the sub-lessee. This is achieved in the Initial Recognition tab when on-boarding the lease as a lessor under the field "Leased Asset". When the sublease is linked to the lessee agreement, it will automatically revalue the right-of-use asset.
As a result, if the amount entered into the Leased Asset amount is greater than the right-of-use-asset, when linking the sublease it will result in a negative right-of-use-asset.
If the sublease is a operating lease, it has no impact on the measurement of the right of use asset value.