Reporting Requirements for Annual Financial Reports of State Agencies and Universities
Universities
Leases — Recognitions and Measurements
Modifications and Terminations
The provisions of a lease contract may be amended while the contract is in effect. According to GASB 87, amendments modify the provisions of the lease contract. Examples of amendments to lease contracts include:
- Changing the contract price
- Lengthening or shortening the lease term
–OR– - Adding or removing an underlying asset
An amendment must be considered a lease modification unless the lessee’s right to use the underlying asset decreases. Then the amendment must be considered a partial or full lease termination. By contrast, exercising an existing option, such as an option to extend or terminate the lease is subject to the guidance of Remeasurements.
Modifications [+]
The lessee and lessor must account for an amendment during the reporting period resulting in a modification to a lease contract as a separate lease if the:
- Lease modification gives the lessee an additional lease asset by adding one or more underlying assets that were not included in the original lease contract.
–AND– - Increase in lease payments for the additional lease asset does not appear to be unreasonable based on the terms of the amended lease contract.
Lessees
Unless a modification is reported as a separate lease, a lessee must account for a lease modification by:
- Remeasuring the lease liability.
- Adjusting the lease asset by the difference between the remeasured liability and the liability immediately before the modification.
–AND– - Recognizing change in current period payments as a decrease to revenue.
Example: A lease amendment that adds an underlying asset to the contract is a lease modification (for example: increasing the lease from three vehicles to four). A lease modification must be accounted for as either a separate lease or a remeasurement of the existing lease.
Alternatively, a lease amendment that removes an underlying asset from the contract (for example: decreasing the lease from three vehicles to two) must be accounted for as a partial lease termination.
Lessors
Unless a modification is reported as a separate lease, a lessor must account for a lease modification by:
- Remeasuring the lease receivable.
- Adjusting the deferred inflow of resources by the difference between the remeasured receivable and the receivable immediately before the lease modification.
–AND– - Recognizing the change in payments must as an inflow of resources (for example: revenue) or an outflow of resources (for example: expense) for the current period.
Terminations [+]
The lessee and lessor must account for an amendment during the reporting period resulting in a decrease in the lessee’s right to use the underlying asset as a partial or full lease termination. For example: the lease term is shortened or the number of underlying assets is reduced.
Lessees
A lessee must account for the partial or full lease termination by reducing the carrying values of the lease asset and lease liability and recognizing a gain or loss for the difference.
However, if the lease is terminated because the lessee purchased an underlying asset from the lessor, the lease asset must be reclassified to the appropriate class of owned asset.
Lessors
A lessor must account for the partial or full lease termination by:
- Reducing or eliminating the carrying values of the lease receivable and the related deferred inflow of resources.
–AND– - Recognizing a gain or loss for the difference.
If the lease is terminated because of the lessee purchasing an underlying asset the lessor must:
- Derecognize the asset.
–AND– - Add gain or loss on sale to termination gain or loss.