Net Investment in the Lease
The net investment in the lease is the asset a lessor recognizes for a sales-type or direct financing lease (ASC 842) or a finance lease (IFRS 16), in place of the underlying asset.
Leasing
Explanation
At commencement, the net investment generally consists of:
• the lease receivable – the present value of lease payments not yet received, plus any residual value guaranteed by the lessee or a third party, and
• the unguaranteed residual asset – the present value of the amount the lessor expects to derive from the asset at the end of the lease that is not guaranteed.
Both are discounted using the interest rate implicit in the lease. Under IFRS 16, the net investment is defined as the gross investment in the lease discounted at the interest rate implicit in the lease.
Over the lease term, the net investment increases with interest income and decreases with lease payments received. It is subject to credit loss or impairment requirements, and the residual value is reviewed regularly.
Why It Matters
The net investment is the central balance in lessor finance lease accounting. Tracking it requires amortization schedules that split each payment into interest and principal – a key design element when implementing lessor scenarios in SAP Revenue Accounting and Reporting (RAR).
Related Terms
Sales-Type Lease · Finance Lease · Interest Rate Implicit in the Lease · Lessor / Lessee · Residual Value Guarantee · Initial Direct Costs · Selling Profit
Related Solution:
Ready to Make Your SAP Finance Landscape Agentic?
Whether you are implementing SAP RAR, modernizing revenue processes, or exploring agentic finance operations, Revident helps you move from strategy to execution.