GASB 87 requires lease accounting for “all right to use” assets of Ohio University. This is a new accounting standard that impacts all public universities in the United States and is not unique to Ohio University.
Historically, the university was required to recognize leases as an operating lease or a capital lease. But with the implementation of GASB 87 (which was effective for FY2022), leases (or lease-like transactions) are required to be recorded as a liability or receivable on the university’s balance sheet. GASB 87 defines a lease as “a contract that 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. Any and all contracts or agreements that meet this criterion are REQUIRED to be recorded unless:
- The lease is a year or less (defined as a maximum possible term, including extensions, under the lease agreement of 12 months or less) and are expensed as a rental
- The agreement transfers ownership to Ohio University and thereby makes it a financed purchase and not a lease (ex., the university leases equipment that transfers ownership of the equipment to the university at the end of the lease)
- The lease is between two or more Ohio University entities (ex., one department leases space from another department in a university owned facility)
This new accounting standard also introduced some new terminology:
- Lessee Leases involve the university leasing property or facilities from an external entity. These types of leases normally involve a requirement for the university to make regular, periodic payments to the lessor. These leases must be recorded on the University Balance Sheet.
- Lessor Leases are those where the university owns or subleases property to another party (external to the university). In this instance, the university records lease income from the periodic payments received from the lessees. These leases must be recorded on the University Balance Sheet.
- Rentals – periodic payments that are expensed, when incurred, for the short-term lease of equipment, property or equipment. These are measured by the period of the lease which must not exceed 12 months, including any available lease extensions. Rentals are expensed at the time of payment and there is no corresponding need to record on the University Balance Sheet.
To ensure that we have a complete list and accurate accounting of leases, it is critical that the following object codes are used. Departments should also be reviewing recurring payments and receipts in your department’s financial transactions, that are not in the following object codes, to ensure that you have properly coded leases. If you find leases in other object codes, you should make correcting entries using the proper object codes and enter change orders to any purchase orders associated with the transactions. This helps ensure that the University has properly identified and accounted for all leases in accordance with GASB 87.
- The following object codes are required to be used for recording lease expenses.
- 732110 – SHORT TERM RENTAL AND LEASE – EQUIPMENT AND VEHICLES
- 732520 – SHORT TERM RENTAL AND LEASE – FACILITIES, LAND AND BUILDINGS
- 732115 – LONG TERM RENTAL AND LEASE – EQUIPMENT AND VEHICLES
- 732515 – LONG TERM RENTAL AND LEASE – FACILITIES, LAND AND BUILDINGS
- 732105 – VARIABLE USAGE LEASE EXPENSE (Variable lease expenses paid based on usage of the leased item. Example: Copy overage charges on a leased copier)
- The following object codes are required to be used for recording lease revenues.
- 470415 - SHORT TERM RENTAL LEASE BLDGS - COMMERCIAL
- 470485 - SHORT TERM LAND LEASE INCOME
- 470495 - SHORT TERM RENTAL LEASE CELL TOWER/ROOFTOP
- 470510 - SHORT TERM EQUIPMENT RENTALS
- 471415 - SHORT TERM RENTAL LEASE BLDGS - RESIDENTIAL
- 470410 - LONG TERM RENTAL LEASE BLDGS - COMMERCIAL
- 470480 - LONG TERM LAND LEASE INCOME
- 470490 - LONG TERM RENTAL LEASE CELL TOWER/ROOFTOP
- 470515 - LONG TERM EQUIPMENT RENTALS
- 471422 - LONG TERM RENTAL LEASE BLDGS – RESIDENTIAL
- 470475 – PERCENTAGE OF SALES LEASE REVENUE (Variable lease revenue received based on the percentage of sales of the lessee)
To assist the University in complying with this new accounting standard, the University purchased LeaseQuery. LeaseQuery is managed by the General Accounting and Financial Reporting Office who has been working with departments across the University over this past year to review any agreements or contracts that had to be recorded as leases under GASB 87.
If you have questions about how to account for a lease agreement under this new accounting standard, please contact General Accounting & Financial Reporting at finance@ohio.edu