Understanding Cradle's Calculations
If you understand how Cradle’s calculations work, it will be much easier to perform a reconciliation with other calculations. To learn more, click here.
The Present Value Calculation Methodology Drives the Difference
No matter the accounting standard (IFRS 16, ASC 842, GASB 87 & 96), the calculation of the present value of the future payments follows the same principle.
To expand the standards require you to:
work out the timing of the future payments
use a discount rate to present value of those future payments
Once the two inputs have been worked out, it's time to do the present value calculation. This is why your manual calculations will not match Cradles. Cradle uses the same calculation methodology as the XNPV function in Excel.
The critical difference is the XNPV function factors in the payment date, making it a more accurate present value calculation. To learn more about how these calculations work, click here.
The difference from these present value calculation methodologies should result in approximately 1% of the balance.
How To Reconcile the Difference
Input the lease into Cradle from the commencement of the lease.
Ensure the lease payments and discount rate in Cradle should match the manual calculation, so the sole driver of the difference is the PV calculation methodology.
Pick a true up date e.g. January 1, 2023
Post the true-up journal - ensure now the liability and asset in Cradle now match your general ledger.
Example
Click here to see an example of a true-up calculation.