What Governments Need to Know Now for GASB 87 – Leases
URGENT! Your budget may NEED TO BE AMENDED to coincide with the implementation of GASB 87.
Ready or not…GASB Statement No. 87 – Leases is here! This GASB must be implemented in the June 30, 2022 financial statements. GASB 87 requires a lessee to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources.
Practical hint: Short-term (less than one year) leases will be recorded as operating leases had been.
What to do now
Get lease information ready, amend the fiscal year 2021-22 budget for any new current year leases (exceeding one year), and make journal entries for leases before closing out the current fiscal year.
Information to collect
For current leases:
- Lease description
- Original lease term
- Any renewal options, and the determination of the likelihood of utilizing those options
- Components of the payments (fixed, variable, interest rate)
- Who has the right to terminate the lease
- Lease obligation maturities for the next five years and beyond (similar to debt maturity schedule)
Leases initiated after 7/1/21 (in this fiscal year):
- Calculate the right-of-use asset and lease liability. Practical hint: Total cost of leased equipment (as if a “capital lease”).
- Governmental Fund Level: In the current fiscal year ending June 30, 2022 – this will be included as a:
- Revenue: Other financing sources – lease financing
- Expenditure: Lease right-to-use assets (capital outlay)
- URGENT: Include Revenue and Expenditure amounts in final budget amendments for the current fiscal year for the Governmental Funds (ending June 30, 2022).
- Business-type funds, Internal Service Funds, and Government-wide level: In the current fiscal year ending June 30, 2022 – this will be included as:
- Asset: Right-to-use assets
- Liability: Lease liability
Your Yeo & Yeo professionals will provide additional guidance and individual assistance during the audit process.