Summary of Statement No. 13

Statement No. 13
Accounting for Operating Leases with Scheduled Rent Increases
(Issued 5/90)


This Statement establishes standards of accounting and financial reporting by state and local governmental entities for operating leases with scheduled rent increases, regardless of the fund type used to report the lease transactions. It requires governmental entities to account for operating leases with scheduled rent increases by using the terms of the lease contract when the pattern of the payment requirements is systematic and rational. This includes lease agreements that specify scheduled rent increases over the lease term that are intended to cover economic factors relating to the property, such as the anticipated effects of cost increases or property value appreciation. If, however, an operating lease contains payment requirements in a particular year that are artificially low (for example, to ease the lessee's near-term cash flow requirements), governmental entities should measure the operating lease transactions either on a straight-line basis over the lease term or based on the estimated fair value of the rental.

The provisions of this Statement are effective for leases with terms beginning after June 30, 1990. Retroactive application for leases with terms beginning before July 1, 1990 is permitted. Entities should recognize operating lease revenue and expenditures/expense using an accrual basis of accounting. However, until GASB Statement No. 11, Measurement Focus and Basis of Accounting-Governmental Fund Operating Statements, becomes effective, entities that report the transactions in governmental and similar trust funds should recognize operating lease revenue and expenditures using a modified accrual basis of accounting.

Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including public benefit corporations and authorities, public employee retirement systems, and governmental utilities, hospitals, colleges, and universities. Paragraph 4 discusses the applicability of this Statement.