Proposed Changes in Lease Accounting
– By Gemma Han
The accounting guidance for leases for tribal governments, as well as Indian gaming operations, is provided in Governmental Accounting Standards Board (GASB) Statement No. 62, “Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements.” Under Statement No. 62, there are currently two ways to account for a lease, either as a capital or operating lease.
A lease is considered a capital lease if it meets one of the following:
• The life of the lease exceeds 75% of the life of the asset.
• There is a transfer of ownership to the lessee at the end of the lease term.
• There is a bargain price purchase option for the lessee at the end of the lease term.
• The present value of the lease payments, discounted at an appropriate discount rate, exceeds 90% of the fair market value of the asset.
A capital lease is treated as a financed purchase of the asset because substantially all of the risks and benefits associated with ownership of the underlying asset are transferred to the lessee. As such, it is recorded on the balance sheet or statement of net position of the lessee as both an asset and a capital lease liability.