The Government Accounting Standards Board (GASB) issued Statement No. 96, guidance on the accounting and financial reporting for subscription-based information technology agreements (SBITAs). This statement established that a SBITA results in a right-to-use asset and a corresponding subscription liability.
To the extent relevant, the standards for SBITAs are based on the standards established in Statement 87, Leases, as amended.
In summary, the subscription liability should be initially measured at the present value of subscription payments expected to be made during the subscription term. Future subscription payments should be discounted using the interest rate the SBITA vendor charges the government, which may be implicit, or the government’s incremental borrowing rate if the interest rate is not readily determinable. A government should recognize amortization of the discount on the subscription liability as an outflow of resources (for example, interest expense) in subsequent financial reporting periods.
TValue software is an excellent program to use for this present value calculation. The present value will determine the Asset Value of the SBITA on your balance sheet and will give you the supporting amortization schedule to allocate the principal and interest.
Let’s do a case study in TValue.
We will use Monthly as our Compounding Period and a Nominal Annual Rate, the incremental borrowing rate, of 5.5%. We will get creative with TValue and create custom Event Names - done in File > Options > Event Names - for the Events. On line 1, enter Asset Value as the Event with the Amount as “U” for unknown. The second line will be Subscription with an Amount of $1,750 for a Number of 48 months.
When you click on Calculate under Compute, you will have an Asset Value of 75,247.85. This will be the intangible asset that you add to your balance sheet and amortize over the four years.
The Amortization Schedule will show the capitalized asset and the monthly amortization of the Subscription Payments.
If you have any questions using TValue software, please give our Support Team a call at 800-426-4741 or shoot us an email at support@TimeValue.com.