Copyright © 2023 Tango. All rights reserved. 4
Lease Accounting Under GASB 87: The Guide to Hassle-Free Compliance
How to account for lease contracts with
multiple components
Sometimes lease contracts include non-lease
components, such as service contracts or Common Area
Maintenance (CAM). In these cases, government entities
should account for the lease and non-lease components
as separate contracts.
Similarly, when lease contracts involve multiple assets,
lessees and lessors alike should account for each asset as
a separate lease contract.
Where applicable, use the prices stated in the contract
to account for each individual component. If the
contract does not state individual prices—or if the stated
prices seem unreasonable—you may use professional
judgment to determine reasonable estimates.
If it isn't practicable to determine an estimate, or if you'd
be unable to provide any justification for where your
estimate comes from, you may account for multiple
components in a lease contract as a single lease unit.
In airports, for example, multiple gate holders,
restaurants, and other businesses will share a common
space, which complicates lease accounting. Ideally in
such situations, everything will be clearly negotiated
in advance to provide clear-cut percentages for CAM
charges. But if that isn't the case, this may be a scenario
where trying to make an estimate isn't practicable, and
accounting for the various components as a single lease
unit makes more sense.
Whichever way you need to go about it, Tango Lease lets
you account for each component in a fully compliant
manner.
How to account for lease terminations
and modifications
You will account for amendments to the lease contract
as either a lease modification or a lease termination,
depending on whether the lessee's right to use the
underlying asset decreases:
ظ If the amendment decreases the lessee's right to use
the asset, then you should consider it to be a partial
or full lease termination.
ظ If the amendment doesn't decrease the lessee's right
to use the asset, then you should consider it to be a
modification.
In the case of a lease termination, you should reduce
either the carrying values of the lease liability and lease
asset by a lessee or the lease receivable and deferred
inflows of resources by the lessor. Then recognize any
difference as a gain or a loss.
In the case of a lease modification, you should
remeasure the lease liability and the lease receivable.
Then adjust the related lease asset by a lessee and the
related deferred inflows of resources by a lessor.
Whether a lease termination or a modification, Tango
Lease will help you calculate the necessary adjustments,
as well as creating associated payment schedules and
journal entries.
