Page 529 - FortWorthFY23AdoptedBudget

XII. Discount Rate

The discount rate is applied to all leases that meet the GASB standards set out in this policy.
As the Lessee, the discount rate is established by using the interest rate at which time the
transaction is made which may be the rate implicit in the lease contract. Consistent with
current guidance, if the lease’s implicit interest rate is not readily determinable within the
contract, the City’s estimated incremental borrowing rate will be used. Determining the
incremental borrowing rate entails estimating the interest rate the Lessee would be charged
for borrowing the lease payment amounts during the lease term.
As the Lessor, the discount rate will be determined by the interest rate that is charged to
the lessee—including implicit rates—and will use this rate to discount the future lease
payments. If the contract does not include a stated interest rate, a calculation, of the implicit
interest rate, will need to be performed. The City will need a market value for the related
property. A valuation specialist might be needed to apply a cost, income or market
approach—or some combination of these approaches—to arrive at a lease’s supportable
implicit rate.

The discount rate will only be updated—and receivable or payable remeasured—if there is
a change in the lease term or interest rate the lessor charges the lessee, provided the changes
individually or in the aggregate are expected to significantly affect the lease receivable or
payable amount. At that time, the receivable or payable will be remeasured using the
revised rate. The deferred inflow and outflows of resources balance generally will be
adjusted by the same amount as any changes resulting from remeasurement of the lease
receivable or payable.

XIII. Remeasurement/Modification

The lease liability/receivable will be remeasured at subsequent reporting dates if one or
more of the following occurs, presuming the changes individually or in the aggregate are
expected to significantly affect the lease liability/receivable since the last measurement:
• The lease term changes
• Based on an assessment of all relevant factors, the likelihood of a residual value
guarantees being paid or purchase option being executed changes from “reasonably
certain” to “not reasonably certain” or vice versa
• The estimated remaining payments change from the amount included in the lease
liability/receivable measurement
• The rate the lessor charges the lessee changes, if used as the initial discount rate
• Remeasurement is required when a contingency—upon which some or all of the
variable payments expected to be made over the lease term’s remainder are based—
is resolved such that those payments meet the criteria for inclusion in the lease
liability/receivable, i.e., an event occurs causing variable payments contingent on
the underlying asset’s performance or use has occurred, causing the payments to
become fixed or fixed in substance
If remeasurement is triggered, the liability/receivable also must be adjusted for changes to
the index or rate used to determine variable payments, if the change is expected to
significantly affect the previous measurement’s liability/receivable amount. Changes in an
index or rate used to measure variable payments do not—in and of themselves—require

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