Lease Accounting

Lease Payable (GASB 87)

Leases are accounted for in accordance with GASB Statement No. 87 and No. 99. The standard defines a lease as a contract that conveys control of the right to use another entity's nonfinancial asset for a period of time in an exchange or exchange-like transaction. This includes contract that meet this definiton, even if they don't contain the word "lease". The lease standard was implemented starting in fiscal year 2022. 

The standard defines three types of leases:

1. Short Term Leases: A short-term lease is a lease that, at the commencement of the lease term, has a maximum possible term under the lease contract of 12 months (or less), including any options to extend, regardless of their probability of being exercised. For a lease that is cancelable by either the lessee or the lessor, such as a rolling month-to-month lease or a year-to-year lease, the maximum possible term is the noncancelable period, including any notice periods."
2. Long-Term Leases That Do Not Transfer Ownership: Variable payments that depend on an index or a rate or those that are fixed in substance should be included in the measurement of the lease liability. All other variable payments, such as those based on future performance of the lessee or usage of the underlying asset, should not be included in the measurement of the lease liability. Lease liabilities should not be remeasured solely for a change in an index or a rate used to determine variable payments, nor should the discount rate be reassessed solely for a change in the lessee's incremental borrowing rate. UND's threshold for recording lease assets and liabilities is $25,000 over the life of the lease.
3. Contracts that Transfer Ownership: A contract that transfers ownership of the underlying asset to the lessee by the end of the contract and does not contain termination options, but that may contain a fiscal funding or cancellation clause that is not reasonably certain of being exercised, should be reported as a financed purchase of the underlying asset by the lessee or sale of the asset by the lessor. These contracts are recorded as a Notes Payable. 

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