105.7 - Statewide Accounting Policy - Leases and SBITAs

Policy Area: Accounting & Financial Reporting
Policy Sub Area: Statewide Financial Reporting
Authority: GASB Codification Section L20
Effective Date: 7/1/2021
Last Revision Date: 4/17/2023
Policy Owner/Division: Statewide Accounting

Policy

This policy establishes the capitalization threshold for lessees that report leases and Subscription-Based IT Arrangements (SBITAs) under GASB Statement 87, Leases, and GASB Statement 96, SBITAs. The Procedures section below discusses incremental borrowing rates for lessors and lessees when an interest rate is not explicitly stated in a leasing or subscription contract or when an implicit rate cannot be determined.

Capitalization Threshold for Lessees

Intangible right-to-use lease assets (a capital asset category) associated with leases of state agencies should be capitalized according to the following threshold:
$10,000 or greater in total future lease payments through the lease term.

If a state agency in the primary government is a lessee in a leasing arrangement, the intangible right-to-use lease asset should be capitalized if greater than or equal to the threshold above. Assets with remaining lease payments below the threshold should be expensed as payments are made. This threshold should only be applied once upon entering into a lease agreement as defined by GASB Statement 87.

Note: This threshold only applies to entities within the primary government, including state departments with separately issued financial statements. For component units with separately issued financial statements, different thresholds may be applied at the discretion of that individual entity based on a determination of the risk of material misstatement at that entity.

Example: A primary government agency has an equipment lease with a lease term of five years. Payments per the lease contract are $500 per month. At the time of implementing GASB Statement 87, the entire five years of payments were left on the lease. The entity would capitalize this lease because the remaining payments on the lease are greater than or equal to $10,000.

Example: A primary government agency has an equipment lease with a lease term of five years. Payments per the lease contract are $500 per month. At the time of implementing GASB Statement 87, only one year of payments were left on the lease. The entity would not capitalize this lease because the remaining payments on the lease are less than $10,000. Instead, payments would be expensed for the remainder of the lease term (one year).

Capitalization Threshold for SBITAs

Intangible subscription (SBITA) assets (a capital asset category) associated with SBITAs of state agencies should be capitalized according to the following threshold:

$400,000 or greater in total future lease payments through the SBITA term.

If a state agency in the primary government has an arrangement that falls under GASB 96, the intangible subscription (SBITA) asset should be capitalized if greater than or equal to the threshold above. Assets with remaining payments below the threshold should be expensed as payments are made. This threshold should only be applied once upon entering into a SBITA as defined by GASB Statement 96.

Example: A primary government agency has a subscription arrangement with a term of three years. Payments per the contract are $300,000 per year. At the time of implementing GASB Statement 96 only two years of payments were left on the contract. The entity would capitalize this arrangement because the remaining payments on the contract ($600,000) are greater than or equal to $400,000.

Procedures

Determining an Appropriate Discount Rate

Accounting Guidance

Entities should refer to the OSC GASB 87 Financial Reporting Update for further information on leases and OSC GASB 96 Financial Reporting Update for further information on SBITAs.

Revision History