Wiley GAAP for Governments 2013: Interpretation and Application of Generally Accepted Accounting Principles for State and Local Governments

CHAPTER 19

ACCOUNTING FOR LEASES

Introduction

Accounting Basis

Lessee Accounting

Recording operating and capital leases by the lessee

Disclosure requirements

Lessor Accounting

Operating lease—Governmental and proprietary funds

Direct financing lease—Governmental funds

Government-wide financial statements and proprietary funds

Leveraged leases

Sales-type leases

Disclosure requirements

Other Leasing Issues for Governmental Entities

Operating Leases with Scheduled Rent Increases

Measurement criteria

Fiscal Funding and Cancellation Clauses

Summary

INTRODUCTION

Accounting for leases is one of the more technically challenging areas in accounting, including governmental accounting. This chapter describes the accounting and financial reporting requirements for both lessees and lessors. Essentially, these accounting requirements depend on whether the lease is classified as an operating lease or a capital lease. This classification is made in the same manner by governmental entities as by commercial enterprises. Two important differences must be considered, however. The first is whether the lease is accounted for by a governmental fund or a proprietary fund. The accounting and financial reporting requirements differ significantly. The second is whether an operating lease has scheduled rent increases inherent in its terms and conditions. The accounting for such scheduled rent increases differs for governmental entities from the accounting used by commercial enterprises for scheduled rent ...