Laserfiche WebLink
City of Redwood City <br />Notes to the Basic Financial Statements (Continued) <br />For the Year Ended June 30, 2025 <br /> <br /> <br />68 <br />Note 1 – Summary of Significant Accounting Policies (Continued) <br /> <br />I. Leases <br /> <br />Lessee <br /> <br />The City has a policy to recognize a lease liability and a right‐to‐use lease asset (lease asset) in the government‐ <br />wide financial statements. The City recognizes lease liabilities with an initial, individual value of $100,000 or more. <br /> <br />At the commencement of a lease, the City initially measures the lease liability at the present value of payments <br />expected to be made during the lease term. Subsequently, the lease liability is reduced by the principal portion of <br />lease payments made. <br /> <br />Lease assets are recorded at the amount of the initial measurement of the lease liabilities and modified by any lease <br />payments made to the lessor at or before the commencement of the lease term, less any lease incentives received <br />from the lessor at or before the commencement of the lease term along with any initial direct costs that are ancillary <br />charges necessary to place the lease assets into service. Lease assets are amortized using the straight-line method <br />over the shorter of the lease term or the useful life of the underlying asset, unless the lease contains a purchase <br />option that the City has determined is reasonably certain of being exercised. In this case, the lease asset is amortized <br />over the useful life of the underlying asset. <br /> <br />Key estimates and judgments related to leases include how the City determines (1) the discount rate it uses to <br />discount the expected lease payments to present value, (2) lease term, and (3) lease payments. <br /> <br /> The City uses the interest rate charged by the lessor as the discount rate. When the interest rate charged by <br />the lessor is not provided, the City generally uses its estimated incremental borrowing rate as the discount <br />rate for leases. <br /> <br /> The lease term includes the noncancellable period of the lease. Lease payments included in the <br />measurement of the lease liability are composed of fixed payments and purchase option price that the City <br />is reasonably certain to exercise. <br /> <br />The City monitors changes in circumstances that would require a remeasurement of its lease and will remeasure <br />any lease asset and liability if certain changes occur that are expected to significantly affect the amount of the lease <br />liability. Lease assets are reported as right to use along with other capital assets and lease liabilities are reported <br />with long-term debt on the Statement of Net Position. <br /> <br />Lessor <br /> <br />The City is a lessor for leases of special purpose facilities, office and commercial space, and land. The City <br />recognizes leases receivable and deferred inflows of resources in the financial statements. <br /> <br />At the commencement of a lease, the City initially measures the lease receivable at the present value of payments <br />expected to be received during the lease term. Subsequently, the lease receivable is reduced by the principal portion <br />of lease payments received. The deferred inflows of resources are initially measured as the initial amount of the <br />lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the <br />deferred inflows of resources are recognized as revenue over the life of the lease term in a systematic and rational <br />method. <br /> <br />7.C. - Page 100 of 269 <br />119