Several types of payments are accounted for in the initial lease liability measurement. These might include fixed payments, residual value guarantees, purchase options you are reasonably certain to exercise, termination penalties, and other reasonably certain payments. Relevant factors that can help determine if a payment is reasonably certain include market-based, contract-based, asset-based, and government-specific factors.
Example:
Suppose your municipality is entering into a lease. The lease agreement calls for fixed monthly payments of $2,000 per month. When you’re budgeting the costs of the lease, it’s easy to only consider those monthly payments.
But for accounting purposes, it’s important to consider the other expenses you might be subject to, including residual value guarantees, purchase options, termination penalties, and other reasonably certain payments.
Relevant factors in determining whether other payments are considered “reasonably certain” include:
Any additional payment that is reasonably certain to be made will be included in the calculation of your initial lease liability or lease receivable balance, so it is important to be aware of any additional payments.