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<br />-24- <br />GASB STATEMENT NO. 86, CERTAIN DEBT EXTINGUISHMENT ISSUES <br /> <br />Current GASB guidance requires that debt be considered defeased in substance when the debtor <br />irrevocably places cash or other monetary assets acquired with refunding debt proceeds in a trust to be <br />used solely for satisfying scheduled payments of both principal and interest of the defeas ed debt. This <br />new standard establishes essentially the same requirements for when a government places cash and other <br />monetary assets acquired with only existing resources in an irrevocable trust to extinguish the debt. <br /> <br />The primary objective of this statement is to improve consistency in accounting and financial reporting <br />for in-substance defeasance of debt by providing guidance for transactions in which cash and other <br />monetary assets acquired with only existing resources—resources other than the proceeds of refunding <br />debt—are placed in an irrevocable trust for the sole purpose of extinguishing debt. This statement also <br />improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes <br />to financial statements for debt that is defeased in substance. The requirements of this statement are <br />effective for reporting periods beginning after June 15, 2017. <br /> <br />GASB STATEMENT NO. 87, LEASES <br /> <br />A lease is a contract that transfers control of the right to use another entity’s nonfinanci al asset as <br />specified in the contract for a period of time in an exchange or exchange -like transaction. Examples of <br />nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this <br />definition should be accounted for under the leases guidance, unless specifically excluded in this <br />statement. <br /> <br />Governments enter into leases for many types of assets. Under the previous guidance, leases were <br />classified as either capital or operating depending on whether the lease met any of four tests. In many <br />cases, the previous guidance resulted in reporting lease transactions differently than similar nonlease <br />financing transactions. <br /> <br />The goal of this statement is to better meet the information needs of users by improving accounting and <br />financial reporting for leases by governments. It establishes a single model for lease accounting based on <br />the principle that leases are financings of the right to use an underlying asset. This statement increases the <br />usefulness of financial statements by requiring recognition of certain lease assets and liabilities for leases <br />that previously were classified as operating leases and recognized as inflows of resources or outflows of <br />resources based on the payment provisions of the contract. <br /> <br />Under this statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease <br />asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby <br />enhancing the relevance and consistency of information about governments’ leasing activities. <br /> <br />To reduce the cost of implementation, this statement includes an exception for short -term leases, defined <br />as a lease that, at the commencement of the lease term, has a maximum possible term under the lease <br />contract of 12 months (or less), including any options to extend, regardless of their probability of being <br />exercised. Lessees and lessors should recognize short-term lease payments as outflows of resources or <br />inflows of resources, respectively, based on the payment provisions of the lease contract. The <br />requirements of this statement are effective for reporting periods beginning after December 15, 2019. <br /> <br /> <br />