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Copyright © 2023 Tango. All rights reserved. 3 Lease Accounting Under GASB 87: The Guide to Hassle-Free Compliance How to do lessee accounting under GASB 87 Under GASB 87, lessees are required to recognize a lease liability and a lease asset at the commencement of the lease term—other than the exemptions and exceptions noted above. ظ Calculate the lease liability by taking the present value of payments expected to be made during the lease term, then subtracting any lease incentives. ظ Calculate the lease asset by taking the amount of the initial measurement of the lease liability, then adding any payments made to the lessor at or before the commencement of the lease term, as well as certain direct costs. ظ Reduce the lease liability as payments are made, and recognize an outflow of resources for interest on the liability. You must also amortize the lease asset over either the lease term or the useful life of the underlying asset—whichever is shorter. Additionally, GASB 87 requires that you provide the following notes on financial statements: ظ A description of leasing arrangements ظ The amount of lease assets recognized ظ A schedule of future lease payments to be made In Tango Lease, this whole process is automated for you. We take care of the lease asset and lease liability calculations, reductions, recognitions, and amortizations. And then we auto-generate the required journal entries. How to do lessor accounting under GASB 87 Under GASB 87, lessors are required to recognize a lease receivable and a deferred inflow of resources at the commencement of the lease term—other than the exemptions and exceptions noted above. Lessors must not derecognize the asset underlying the lease. ظ Calculate the lease receivable as the present value of lease payments expected to be received during the lease term. ظ Calculate the deferred inflow of resources by taking the value of the lease receivable, then adding any payments received at or before the commencement of the lease term that relate to future periods. ظ You must also recognize interest revenue on the lease receivable and an inflow of resources from the deferred inflows of resources over the term of the lease. Additionally, GASB 87 requires that you provide the following notes on financial statements: ظ A description of leasing arrangements ظ The total amount of inflows of resources recognized from leases Due to the way GASB structured their lessor accounting standards, you will have to perform some of these lessor calculations manually, but we'll walk you through it in Tango Lease. Once those calculations are completed, Tango takes over and auto-generates your journal entries. Get a demo of our FedRAMP®-certified lease accounting software REQUEST DEMO