Under IFRS 16 within Oracle Lease Accounting, a rent-free period is configured by creating a payment schedule line for the specific interval and setting the payment amount to zero. The system's core calculation engine for the Right-of-Use asset and Lease Liability amortization is fundamentally driven by the defined lease periods (e.g., monthly, quarterly) and the payment frequency. The rent-free period is simply one or more periods within this structure where the payment is zero, while interest accretion and asset amortization calculations continue as normal over the entire lease term.

A. Lease payments are set to the index rate.

This is incorrect. Index rates are used for variable lease payments that fluctuate based on an external index, a concept distinct from a rent-free period.

C. Calculations are based on a date range.

This is less precise. While a date range defines the rent-free interval, the system's calculations are processed on a periodic basis (e.g., monthly) according to the payment frequency.

1. Oracle Financials Cloud

Using Lease Accounting

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Chapter 5: Leases

Section: Create Payments.

The documentation states: "You can create a single payment for the entire lease term or create multiple payments for different periods of the lease term... For example

you can create a payment of zero for the first three months of the lease as a rent-free period." This directly supports option B. The entire process described for creating payment schedules is based on defining the number of periods and the frequency

which supports option D.

2. Oracle Financials Cloud

Implementing Lease Accounting

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Chapter 2: Lease Accounting Configuration

Section: Lease Accounting Configuration.

This guide details the setup of system options

including calendars and frequencies. It establishes that the fundamental basis for all lease processing and calculations is the defined periodicity. This provides foundational evidence for why calculations are based on periods and frequency (Option D)

not just a generic date range.