Reporting Requirements for Annual Financial Reports of State Agencies and Universities
Universities
Leases — Recognitions and Measurements
Modifications
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 (RTU) 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.
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.
Governmental Activity
The following entries for governmental activities record a modification of lease contract. In order to be recorded correctly, agencies must complete all entries for lease obligations and the associated intangible right to use assets.
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC | AY | PCA | COBJ | Amount | R | Fund | Input GL |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| FT01, 02, 03, 04 Record Change in Capital Outlay in Expenditures | ||||||||||||
| (1) | 5 | U | XXXCY | XXX | 632 | CY | 99999 | 7329 | $ XXX.XX | XXXX | 9999 | |
| FT01, 02, 03, 04 Record Change in RTU Lease Obligation | ||||||||||||
| (2) | 5 | U | XXXCY | XXX | 657 | CY | 99999 | 3893 | $ XXX.XX | XXXX | 9999 | |
| FT01, 02, 03, 04 Reclass Rent/Lease Expenditure – RTU | ||||||||||||
| (3) | 5 | U | 0832CY | XXX | 633 | CY | 99999 | 7XXX | $ XXX.XX | XXXX | 9999 | |
| FT01, 02, 03, 04 Record Change in Interest Expense – RTU | ||||||||||||
| (4) | 5 | U | 0832CY | XXX | 632/633 | CY | 99999 | 7802 | $ XXX.XX | XXXX | 9999 | |
| FT01, 02, 03, 04 Record Change in Debt Service Expenditure – RTU | ||||||||||||
| (5) | 5 | U | 0832CY | XXX | 632 | CY | 99999 | 7339 | $ XXX.XX | XXXX | 9999 | |
| FT12 Record Change in BC Noncurrent RTU Lease Liability | ||||||||||||
| (6) | 5 | U | 0832CY | XXX | 516 | CY | 99999 | 3893 | $ XXX.XX | XXXX | 1719 | |
| FT11 Record Change in RTU Asset and Eliminate RTU Capital Outlay | ||||||||||||
| (7) | 5 | U | 0832CY | XXX | 513 | CY | 99999 | 7329 | $ XXX.XX | XXXX | 06XX | |
| FT12 Record Change in BC Noncurrent RTU Lease Obligation | ||||||||||||
| (8) | 5 | U | 0832CY | XXX | 503 | CY | 99999 | 7339 | $ XXX.XX | XXXX | 1719 | |
| FT12 Record Change in BC Current Liability RTU Obligation due in One Year | ||||||||||||
| (9) | 5 | U | 0832CY | XXX | 537 | CY | 99999 | Blank | $ XXX.XX | XXXX | 1629 | |
| FT12 Reverse BC Current Liability from BC Noncurrent RTU Obligation | ||||||||||||
| (10) | 5 | U | 0832CY | XXX | 537 | CY | 99999 | Blank | $ XXX.XX | R | XXXX | 1719 |
| FT12 Record Change in BC Accrued Interest Payable | ||||||||||||
| (11) | 5 | U | 0832CY | XXX | 503 | CY | 99999 | 7802 | $ XXX.XX | XXXX | 1610 | |
| FT11 Record Change in BC Amortization RTU Asset | ||||||||||||
| (12) | 5 | U | 0832CY | XXX | 512 | CY | 99999 | 7885 | $ XXX.XX | XXXX | 06XX | |
Business-Type Activities (FT05) and Component Units (FT15)
The following entries for business-type activities record a modification of lease contract. In order to be recorded correctly, agencies must complete all entries for lease obligations and the associated intangible right to use assets.
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC | AY | PCA | COBJ | Amount | R | Fund | Input GL |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| FT05, 15 Record Change in RTU Asset | ||||||||||||
| (1) | 5 | U | XXXCY | XXX | 644 | CY | 99999 | Blank | $ XXX.XX | XXXX | 03XX | |
| FT 05, 15 Record Change in RTU Lease Obligation | ||||||||||||
| (2) | 5 | U | 0832CY | XXX | 645 | CY | 99999 | Blank | $ XXX.XX | XXXX | 1219 | |
| FT05, 15 Reclass RTU Lease Obligation | ||||||||||||
| (3) | 5 | U | 0832CY | XXX | 633 | CY | 99999 | 7462 | $ XXX.XX | XXXX | 9999 | |
| FT05, 15 Reclass RTU Interest Expense | ||||||||||||
| (4) | 5 | U | 0832CY | XXX | 632 | CY | 99999 | 7802 | $ XXX.XX | XXXX | 9999 | |
| FT05, 15 Reclass RTU Lease Obligation | ||||||||||||
| (5) | 5 | U | 0832CY | XXX | 644 | CY | 99999 | Blank | $ XXX.XX | XXXX | 1219 | |
| FT05, 15 Record Change in Accrued Interest | ||||||||||||
| (6) | 5 | U | 0832CY | XXX | 645 | CY | 99999 | Blank | $ XXX.XX | XXXX | 1110 | |
| FT05, 15 Record Change in RTU Current Liability Due in One Year | ||||||||||||
| (7) | 5 | U | 0832CY | XXX | 647 | CY | 99999 | Blank | $ XXX.XX | XXXX | 1129 | |
| FT05, 15 Reverse Current Liability from BC Noncurrent RTU Lease Obligation | ||||||||||||
| (8) | 5 | U | 0832CY | XXX | 647 | CY | 99999 | Blank | $ XXX.XX | R | XXXX | 1219 |
| FT05, 15 Record Change in Amortization RTU Asset | ||||||||||||
| (9) | 5 | U | 0832CY | XXX | 632 | CY | 99999 | 7885 | $ XXX.XX | XXXX | 03XX | |
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 as an inflow of resources (for example: revenue) or an outflow of resources (for example: expense) for the current period.
Note: Refer to the Governmental Activity and Business Type Activity RTU Lease Modification working paper templates available in the Annual Financial Report Working Papers page (Leases/SBITA/PPP Working Papers section).