Present Value Calculations in Crunchafi’s Lease Accounting software
Crunchafi’s Lease Accounting software calculates present value using a monthly compounding period—treating payments made from the 1st to 15th as beginning-of-month and payments from the 16th onward as end-of-month—to consistently handle mixed monthly and yearly lease payment streams in compliance with ASC 842, IFRS 16, and GASB standards.
Understanding Crunchafi’s Lease Accounting Product and Approach to Present Value Calculations
General Approach
Present Value (PV) calculations are mathematically conducted by choosing a compounding period, such as year, month, or day. The accounting standards of ASC 842, IFRS 16, and GASB 87, 96 do not specify a required present value approach to compounding periods. Crunchafi's software uses a present value methodology based on the period of months. In practice, lease payment streams often include both monthly and yearly payments, so PV calculations are conducted consistently throughout the system based on the lowest common denominator: months.
Beginning of Month Payments
For payments made on the 1st to 15th day of the month, the software uses a beginning of month convention, calculating the present value as if the payment was on the 1st of the month.
End of Month Payments
For payments made on the 16th through the end of the month, the software uses an end of month convention, calculating the present value as if the payment was on the last day of the month.