Laserfiche WebLink
<br /> 63 <br />City of Elk River <br />Notes to Basic Financial Statements <br /> <br /> <br />NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br /> <br />D. Assets, Liabilities, Deferred Outflows/Inflows of Resources , and Net Position or Equity <br /> (Continued) <br /> <br />5. Lease Receivable <br />The City is a lessor for numerous noncancellable leases. The City recognizes a lease receivable <br />and a deferred inflow of resources in the government -wide and governmental fund financial <br />statements. <br /> <br />At the commencement of a lease, the City measures the lease receivable at the present value of <br />payments expected to be received during the lease term. Subsequently, the lease receivable is <br />reduced by the principal portion of lease payments received. The deferred inflow of resources is <br />initially measured as the initial amount of the lease receivable, adjusted for lease payments <br />received at or before the lease commencement date. <br /> <br />Subsequently, the deferred inflow of resources is recognized as revenue over the life of the lease <br />term in a systematic and rational manner. <br /> <br />Key estimates and judgments include how the City determines (1) the discount rate, (2) lease <br />term, (3) lease receipts, and (4) amortization. <br /> <br />The City determines the discount rate for leases based on the applicable State and Local <br />Government Securities (SLGS) rate. The lease term includes the noncancellable period of the <br />lease. Lease receipts included in the measurement of the lease receivable is composed of fixed <br />payments from the lessee. <br /> <br />6. Right-to-Use Lease Assets/Lease Liabilities <br />The City recorded right-to-use lease assets as a result of implementing GASB Statement No. 87, <br />Leases. The right-to-use lease assets are initially measured at an amount equal to the initial <br />measurement of the lease liability plus any payments made prior to the lease term, less lease <br />incentives, and plus ancillary charges necessary to place the lease into service. The right -to-use <br />assets are amortized on a straight-line basis over the life of the related lease. <br /> <br />Key estimates and judgments related to leases include (1) the discount rate, (2) lease term, (3) <br />lease payments, and (4) amortization . <br /> <br />The City uses the interest rate charged by the lessor as the discount rate. When the interest rate <br />charged by the lessor is not provided, the City determines its estimated borrowing rate based on <br />the applicable State and Local Government Securities rate. The lease term includes the <br />noncancellable period of the lease. Lease payments included in the measurement of the lease <br />liability are composed of fixed payments and purchase option the City is reasonably certain to <br />exercise. <br /> <br />The City monitors changes in circumstances that would require a re -measurement of the leases <br />and will remeasure the right-to-use lease assets and liabilities if certain changes occur that are <br />expected to significantly affect the amount of the lease liability. <br />Page 253 of 637