The GASB 87 Lease Test

If you only read one thing If a lease conveys the right to control an identified asset for a period of time, it generally gets capitalized as a right-to-use asset with a matching liability, not simply expensed as rent.

Why This Matters

This is a genuine judgment call, not a lookup. GASB 87 changed how leases get treated, and getting it wrong means either overstating expenses or missing a real liability on the books.

What’s Actually Going On

Under GASB 87, a lease generally gets capitalized when it conveys the right to control an identified asset for a period of time. Two things have to be true: the asset has to be specifically identified, not just “any unit the vendor happens to provide,” and the government has to control how it’s used, for a term longer than the short-term exemption.

Worked example, reasoned through: a district signs a 4-year agreement for a specific fleet of 15 copiers, delivered to and used exclusively by the district for the full term. The district can’t be forced to swap machines mid-term without its consent.

Working through the test: does this convey the right to control an identified asset for a period of time? Yes, the copiers are specifically identified, not just “any copier the vendor happens to provide,” the district controls their use, and the term is multi-year.

Conclusion: this gets capitalized as a right-to-use asset with a matching lease liability, not simply expensed as an annual rental cost.

Contrast: a month-to-month equipment rental with no specific identified unit and no multi-year term would likely stay a simple expense, short-term leases are exempt.

How This Applies

Before assuming any multi-year agreement is “just a lease expense,” check it against the test: specifically identified asset, control over its use, and a term longer than the short-term exemption. Getting this wrong means either overstating expenses or missing a real liability on the books.