How should revenue be recognized for capital leases, when the government is the lessor?

In the context of capital leases where the government acts as the lessor, revenue recognition follows specific guidelines aligned with the terms of the lease and the availability of the resources.

For capital leases, revenue should generally be recognized when it is both measurable and available. This aligns with the principle of recognizing revenue at the point when the government can reasonably anticipate receiving the income, which often coincides with the timing of lease payments. The concept of "availability" typically refers to the funds being appropriated and available for expenditure, which must be assessed to determine when revenue can be officially recognized.

This approach ensures that revenue aligns with actual inflows and that the financial statements accurately reflect the government's financial condition. As such, recognizing revenue as soon as it becomes available emphasizes the importance of timely and relevant financial reporting.

In contrast, options that suggest recognizing revenue ratably over the lease period or when the payment is due do not adhere to the concept of recognizing revenue based on the availability criterion, which is crucial for proper financial management and reporting in government accounting. Additionally, stating that lease payments reduce the related receivable emphasizes cash flow management rather than revenue recognition, which differentiates the concepts of revenue and receivable accounting.