Creating Equipment Lease Requisitions

Use this process to enter the required information for leased equipment so that fund liens can be accurately established and tracking of inventorial equipment can be successful.

Note: Any type of lease is a Restricted Purchase. The purchase order MUST be reassigned to a Central Purchasing Buyer. (See Assigning a Purchase Order to a Different Buyer.) In Banner, set up the lease as a blanket purchase with a “B” purchase order number (see Purchase Order Assignment.) Equipment lease requests are typically initiated in the CruzBuy system, however the Purchase Order must be created in FIS Banner.
Operating Leases and Capital Leases may be designed with or without purchase options.
Go to http://purchasing.ucsc.edu/howto/leasepurchasechart.html for more information about Equipment Lease purchases.

Definitions
FPAREQN Procedure
Helpful Reminders

Definitions

Lease: A contract between the University and a Supplier that contains the essential terms and conditions for the use (not purchase) of property in exchange for scheduled payments of a specific amount over a specified term. Title of the equipment remains with the Supplier. Equipment is returned to the Supplier at the end of the term of the contract.

Operating Lease: Valued for an amount less than $100,000 and coded with the Account Code 006135 or 006155. Equipment acquired under an operating lease is not inventoried and tagged.

Capital Lease: Valued at $100,000 or more. More difficult criteria must be evaluated in consultation with Plant Accounting to accurately determine this classification and the use of Account Code 006130 and 006150. Equipment acquired under a capital lease is inventoried and tagged at the inception of the contract.

Lease with No Purchase Option: A lease that does not include an option to purchase the equipment for a specified amount upon termination of the lease. Title remains with the lessor. No principle or interest components apply to payments.

Lease with Purchase Option: A lease which includes an option to purchase the equipment for a specified amount upon termination of the lease. If this option is exercised, title then transfers to the University. Payments include principle and interest components. This is NOT the same type of contract as a Lease-Purchase (installment purchase); (see Creating Equipment Lease-Purchase Requisitions (Installment Purchases)).

FPAREQN Procedure

Important: It is essential that the lease purchase order maintain integrity over term. All activity relating to the contract must be kept on the same PO number (i.e. original contract, all payments, like-for-like exchanges, etc.). Do NOT create a new purchase order for a new fiscal year.


Note: Maintenance agreements should be on a separate purchase order. If a separate PO is not possible, ask the supplier to either bill the lease and maintenance separately, or invoice UCSC with separate line items for the lease portion and maintenance portion on each invoice.

1. Enter the requisition with COMMODITY LEVEL ACCOUNTING according to the instructions in Creating a Requisition FPAREQN: Commodity Level Accounting. Include the following detailed information in Document Text:

• In FOAPOXT, <TAB> to the CLAUSE field and type in the clause name [EQUIPLSE] for Lease with Purchase Option, or [LEASEW/O] for Lease Without Purchase Option; type [F10] Commit, Right Click - Save, or click on the Save icon . Type [control q] Exit Screen, Right Click - Exit, or click on the Exit icon to return to FPAREQN.
   
• When you provide the commodity description, you MUST specify the EQUIPMENT MANUFACTURER and MODEL NUMBER.

2. Accept Vendor tax default unless the equipment is located outside of Santa Cruz county; i.e. in Monterey, Santa Clara, etc.
    
3. In the UNIT OF MEASURE field, specify month, quarter or year as appropriate.
    
4. In the QUANTITY field, ENTER THE NUMBER OF PAYMENTS TO BE MADE IN THE CURRENT FISCAL YEAR ONLY. This quantity needs to reflect either 12 monthly or 4 quarterly payments, depending on the number of months remaining in the current fiscal year.
    
5. In the UNIT PRICE field, enter the SUBTOTAL OF EACH INDIVIDUAL PAYMENT, and use account code 6170, 6130, 6135, 6150, or 6155 as appropriate.
    
6. In Line Item Text, insert the INVEQUIP clause.
    
7. Select the applicable Warranty clause: WTY.1YR, WTY 2 YR, WTY5YR, WTY30D, OR WTY90.
    
8. After entering all your lease information in FOAPOXT, commit your changes by typing [F10] Commit, Right Click - Save, or clicking on the Save icon . Type [control q] Exit Screen, Right Click - Exit, or click on the Exit icon to return to FPAREQN.

Note: If no dollar amount is assigned to the trade-in of University-owned equipment, contact Equipment Administration to determine the correct procedure for disposing, surplusing and removing the equipment from inventory.

9. Arrow down and enter another commodity line item for the trade-in equipment if applicable. Refer to Equipment Trade-Ins (Purchased or Leased).
    
10. To allow the PO to remain open for multiple fiscal years, arrow down and enter other commodity line items as follows:
    
    Enter a line item for each fiscal year for the life of the lease.
    For example:
    06-07 lease purchase
    07-08 lease purchase
    08-09 lease purchase

Note: These commodities are mandatory for all leases. They allow the Purchase Order to remain open for multiple fiscal years.

11. Enter the UNIT OF MEASURE as “EA,” the QUANTITY as “1” and UNIT PRICE as “$10.00.” Change tax field to NOTX.
     
12. In Line Item Text FOAPOXT, type “IGNORE THIS LINE ITEM.”
     
13. Commit your FOAPOXT changes by typing [F10] Commit, Right Click - Save, or clicking on the Save icon . Type [control q] Exit Screen, Right Click - Exit, or click on the Exit icon to return to FPAREQN.

14. Complete the remainder of the requisition as you would for Creating a Requisition FPAREQN: Commodity Level Accounting.

Important: All Lease Purchase Orders must go through a Central Purchasing buyer. See Assigning a Purchase Order to a Different Buyer.

Helpful Reminders

Use the correct account code for the type of lease agreement.

Use the correct clause or clauses for the type of lease agreement.

Verify the classification of the type of lease for your equipment with Plant Accounting if the amount of the lease is $100,000 or more.

Change Orders are required for the following situations:

• When a purchase option is exercised on leased equipment, a change order needs to be completed and approved to add a final commodity line to include the cost of the purchase option using either Account Code 007010 or 007020 at the buy-out amount.
   
• Leases must be renewed annually with a change order that adds money for the number of payments due during that fiscal year. New purchase orders should not be set up for each fiscal year. To insure accurate reporting it is mandatory that all lease payments be made against the same purchase order number throughout the term of the lease contract (usually three to five years).
   
• When a new lease includes the trade-in of actively leased equipment, a change order must be completed to terminate the old lease. Refer to the FIS manual chapter entitled Equipment Trade-Ins (Purchased or Leased).
   
• Early contract termination.

See “Guidelines for Leases, Installment Purchases and Associated Trade-Ins,” available on the Equipment Administration website.