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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Capital Assets

Capital Asset Categories
Leasehold Improvements

Leasehold improvements are capital improvements made by a lessee to leased property that reverts to the lessor at the end of the lease term. Moveable equipment and furniture not affixed to the property are not considered leasehold improvements.

In accordance with GASB 87, Leasehold improvements are capitalized and amortized over the shorter of either:

  • The useful life of the improvement.
    –OR–
  • The lease term, which includes the noncancelable period plus renewal options that are reasonably certain to be exercised.

Under GASB 87, leasehold improvements are accounted for separately from the right-to-use asset associated with the lease. Costs associated with improvements (made in lieu of rent or as part of lease incentives) must be evaluated to determine appropriate accounting treatment.

Generally, leasehold improvements do not have residual value. Remove these assets from the financial records upon disposal or when the lease term ends, whichever occurs first. Once a leasehold improvement is fully amortized, the improvement must be removed from the financial records. For more information, see the Leasehold Improvements Definition in the SPA Process User’s Guide (FPP N.005).