GASB Statement Number 87, Leases, eliminates operating leases, all contracts that meet the definition of lease are to be accounted for as assets and liabilities by lessees, similar in some ways to capital leases. Governments need to evaluate contracts in which the government pays another entity to use an asset (government as a lessee) or another entity pays the government to use the government’s asset (government as a lessor) to determine if those contracts meet the definition of a GASB 87 lease. GFOA has prepared an advisory to help governments prepare for the implementation of GASB 87.
For governments that are a lessee or lessor in accordance with GASB 87, there are journal entries that have to be made when the lease begins and throughout the lease term. GFOA has prepared an example of the entries needed from both the lessee and lessor perspective. In order to prepare the journal entries, present value calculations of the lease payments are required to made (lessees and lessors), lease repayment schedules need to be prepared (lessees and lessors), and amortization schedules of the intangible right-to-use asset (lessees) and the deferred inflows of resources (lessors) need to be prepared. This tool provides the calculations needed to prepare the necessary entries for the government as a lessee and as a lessor at the beginning of the lease term and throughout the life of the lease.
This tool is an example of a government entering into one lease, it does not include adjustments for lease modifications, full or partial terminations or other situations that could affect the amounts reported for leases that are described in GASB 87. The intent of this tool is to 1) demonstrate how governments can perform the basic calculations needed for applying the lease standard with existing technology and 2) understand the data that is being produced. Of course, governments will have to adjust the appropriate tabs based on their own facts and circumstances.