FMX Home
Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

General Accounting

Leases
Accounting and Reporting by Lessors

Sales-type leases are leases that meet the criteria for:

  • One or more of capital leases
  • Sales-type leases
  • Direct financing leases
    –AND–
  • Give profit (or loss) to the lessor

Direct financing leases (leases other than leveraged leases) are leases that meet the criteria for:

  • One or more capital leases
  • Sales-type leases
  • Direct financing leases
    –BUT–
  • Do not give profit (or loss) to the lessor

Sales-type and direct financing lease contain the following criteria:

  • Collectability of the minimum lease payments is reasonably predicted
  • No important uncertainties surround the amount of unreimbursable costs yet to be incurred by the lessor under the lease

Operating leases are all other leases where:

  • The leased property is depreciated following the lessor’s normal depreciation policy and the accumulated depreciation is deducted from the investment in the leased property in the Statement of Net Position.
  • The rent is reported as revenue on a straight-line basis over the lease term unless another systematic and rational basis is more representative of the time pattern in which use benefit from the leased property is diminished — in which case that basis is used.
  • Per GASB 65, the initial direct costs of an operating lease is recognized as an expense/expenditure in the period incurred.
  • A loss is recognized at the inception of the lease if the fair value of the property is less than its cost or carrying amount. The property relates to an operating lease involving real estate that would have been classified as a sales-type lease except that it did not meet capital lease criterion 1 (the lease transfers ownership of the property to the lessee by the end of the lease term).

Participation by Third Parties

The sale or assignment of a lease or property that is subject to a lease that was accounted for as a sales-type lease or direct financing lease does not negate the original accounting treatment accorded the lease.

Any gain or loss on the sale or assignment is recognized at the time of the transaction, except if:

  • The sale or assignment is between related parties
    –OR–
  • The sale or assignment is with recourse

Disclosure Requirements of the Lessor

Sales-type, direct financing and operating leases require disclosure of a general description of the lessor’s leasing arrangements.

Additionally, sales-type and direct financing leases require the lessor to disclose in Note 8:

  • The components of the net investment in sales-type and direct financing leases as of each financial statement date:
    • Future minimum lease payments to be received less:
      • Executory costs
        –AND–
      • Accumulated allowance for uncollectible minimum lease payments receivable
    • Unguaranteed residual values accruing to the lessor
    • Initial direct costs (only for direct financing leases)
    • Related liability
  • Future minimum lease payments to be received for each of the five succeeding fiscal years
  • Total contingent rentals included in the income statement for each period presented

Additionally, operating leases require the lessor to disclose in Note 8:

  • The cost and carrying amount, if different, of property on lease or held for leasing by major classes of property, and the amount of accumulated depreciation in total.
  • Minimum future rentals on noncancelable leases in the aggregate and for each of the five succeeding fiscal years.
  • Total contingent rentals for each period presented.
Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
Comptroller.Texas.Gov | FMX
FMX Sitemap | Contact FM
Accessibility Policy | Privacy and Security Policy