GASB 96 Lease Accounting Example

GASB 96 applies to Subscription-based IT Arrangements (SBITAs). Let’s take an example of a payroll software subscription by the state government department that is active for two years at $20,000 beginning on January 1, 2023, and ending on December 31, 2024, paid annually at the beginning of the year. The implementation of the software will incur several costs:

is the estimated preliminary cost which will be consumed during the process of finding the vendor and will add no value to the software subscription.


is the estimated initial implementation cost which will enhance the value of the software as the software will include customizations requested by the state government department.


is the estimated operational cost which will be consumed in the maintenance of the software and will not add value to the existing software functionality.

The discount rate used for the arrangement is 4%.

The state government department will need to calculate the initial liability using the present value of the future cash flows — $39,231. Since there are initial implementation costs for the software on top of the subscription fee, those should be capitalized per the GASB 96 guidance to establish the initial asset, therefore:

Initial liability + Initial implementation cost = Initial asset

$39,231 + $3,000 = 42,231

Preliminary and operational costs do not usually add to the value of the SBITA implementation and are generally recognized as expenses unless those expenses satisfy the criteria of capitalization.

Journal entries: The government organization will record the following entries on the effective date of the SBITA:

Recording initial SBITA asset and corresponding liability including cash payment for initial implementation costs
Debit Credit
SBITA Right-of-use asset
SBITA short-term liability
SBITA long-term liability
Cash out

Since the payment has been made in advance per the arrangement, it needs to be recorded in the month of January 2023. The entry below will reduce the SBITA liability by $20,000 and the remaining balance will be $19,230.77:

Recording advance payment for the subscription
Debit Credit
SBITA liability
Cash out
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At the end of the month, the government organization also needs to recognize the amortization of the SBITA asset.

Debit Credit
SBITA asset contract
Amortization expense

At the end of the month, the government organization also needs to recognize the accrued interest expense on the remaining SBITA liability.

Debit Credit
Accrued interest expense
Accrued interest liability

Note: The monthly accrued interest shall be accumulated over the periods till the next payment is received.

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*Ensure that the Implementation and Application Dates are 1/1/2023.

GASB 96 lease accounting example

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