INTANGIBLE ASSETS – RIGHT-TO-USE LEASE ASSET - 8615.4

(New: 07/2022)

A right-to-use lease asset is an intangible capital asset. The asset represents the right to use an underlying asset identified in a lease contract, as specified for a period of time.

Agencies/Departments will recognize the intangible right-to-use lease asset when:

1. The contract conveys control of the right to use another entity's nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction.
2. The minimum noncancelable contract term is greater than twelve months.
3. The contract does not transfer ownership of the underlying asset.
4. There is $100,000 or more in total future lease payments.
5. The underlying asset is used to conduct state business.

Agencies/Departments will recognize the right-to-use lease assets using the same criteria above when an aggregate of similar assets are consolidated into one lease, but only when they are leased at the same time with an identical vendor.

Leases excluded from this policy:

• Leases of intangible assets
• Leases of biological assets
• Leases of inventory
• Service concession arrangements (as specified in GASB Statement No. 60)
• Leases of assets financed with outstanding conduit debt
• Supply contracts
• Leases of assets that are investments
• Certain leases subject to external laws, regulations, or legal rulings

Measurement of Right-To-Use Lease Assets

Agencies/Departments will measure and record the right-to-use lease asset at the present value of payments expected to be made during the lease term, discounted using the implicit interest rate stated by the lessor or in the lease contract. If the implicit interest rate is not stated, use the Governmental Accounting Standards Board Statement No. 87 (GASB 87) incremental borrowing rate on the State Controller's Office (SCO) website. Related costs include payments made to the lessor at or prior to the commencement of the lease, less any incentives, or initial direct costs related to placing the lease asset into service. Agencies/Departments should amortize the right-to-use lease asset over the shorter of the lease term or the useful life of the underlying asset.

Accounting for Right-To-Use Lease Assets

Record right-to-use lease assets using the following accounts:

• 1623200 – Right-To-Use Leased Land – Amortizable (Legacy Account 2415)
• 1623400 – Right-To-Use Leased Buildings – Amortizable (Legacy Account 2416)
• 1623600 – Right-To-Use Leased Equipment – Amortizable (Legacy Account 2417)

See the SCO's reporting website for detailed information on accounting and reporting leases in compliance with the GASB 87.

See SAM Section 8632, Accounting for Property Acquisitions – Leases and Contracts That Transfer Ownership (Financed Purchase), for a description of leases.