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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

Universities

Leases — Recognitions and Measurements
Remeasurements

Lessee

According to GASB 87, the lessee is required to remeasure the lease liability when a change in circumstances results in a significant change in the expected lease payments. A remeasurement will occur if there is a:

  • Change in the lease term, including the reassessment of options to extend or terminate the lease when it becomes reasonably certain that such options will or will not be exercised.
  • Likelihood of a residual value guarantee being paid has changed from reasonably certain to not reasonably certain, or vice versa.
  • Likelihood of a purchase option being exercised has changed from reasonably certain to not reasonably certain, or vice versa.
    –OR–
  • Contingency that is resolved in such a way that those payments now meet the criteria for inclusion in the lease liability. (For example: an event occurs that causes variable payments that were contingent on the performance or use of the underlying asset to become fixed payments for the remainder of the lease term).

Remeasurement must be based on the revised expected lease payments, using an updated discount rate.

According to GASB Implementation Guide No. 2025-1, Implementation Guidance Update–2025:

Question 4.9:

In circumstances in which an agency remeasures a lease liability because of a lease modification, should the agency remeasure from the commencement of the lease or from the date of the modification?

Answer:

A remeasurement due to the modification of a lease must be calculated from the date of the modification.

Lessor

According to GASB 87, the lessor is required to remeasure the lease receivable when a change in circumstances results in a significant change in the expected lease payments. A remeasurement occurs if there is a:

  • Change in the lease term, including the reassessment of options to extend or terminate the lease.
  • Change in the interest rate the lessor charges the lessee if that rate is explicitly stated or otherwise affects the measurement of lease payments.
    –OR–
  • Resolution of a contingency affecting variable payments, resulting in those payments meeting the criteria for inclusion in the lease receivable (for example, when variable payments based on performance or use become fixed for the remainder of the lease term).

When the lease receivable is remeasured, the deferred inflow of resources is adjusted by the same amount as the change in the lease receivable.

A lease liability is NOT required to be remeasured solely for:

  • A change in an index or rate used to determine variable payments (such as CPI). Changes in those payments are recognized as revenue in the period in which the obligation for those payments is incurred.
  • A change in the lessee’s incremental borrowing rate or other discount rate assumptions, unless the change is associated with a remeasurement event (for example, a change in the lease term).

According to GASB Implementation Guide No. 2019-3, Leases

Question 4.48:

In addition to fixed payments, a lease contract includes provisions for variable payments based on future performance and for a residual value guarantee that did not initially meet the criteria for inclusion in the lease receivable. If those variable payments and the residual value guarantee subsequently meet the criteria for recognition, should the amounts be added to the existing lease receivable or be considered separate receivables?

Answer:

When the variable payments and residual value guarantee meet the criteria for recognition, the amounts must be considered separate receivables, and an inflow of resources must be recognized in the period to which those payments relate. Variable payments based on future performance and residual value guarantees that are not fixed in substance must not be included in the initial measurement of the lease receivable. Remeasurement of the lease receivable is not required when those payments meet the criteria for recognition.