Definitions

Capital Lease is a lease that meets one or more of the following criteria:

  • Lease term is greater than 75% of the equipment's estimated economic life.
  • Lease contains an option to purchase the equipment for less than fair market value.
  • Ownership of the equipment is transferred to the University at the end of the lease term.
  • Present value of the lease payments exceeds 90% of the fair market value of the equipment.

The value of future payments is significant to the University and requires recognition as a long-term debt in the University's annual audited financial report (as determined by Financial Reporting).  A capital lease of equipment transfers all benefits and risks inherent in ownership to the University.  

Operating Lease  is a lease that does not meet one or more of the criteria included in the Capital Lease definition.  In addition, at the University of Washington, any lease where the cost of documentation, accounting and disclosure, and audit support significantly exceeds the benefit to University stakeholders will be accounted for as an operating lease, even if it otherwise meets the capital lease criteria. Generally, the present value of the lease payments needs to be $1M or more in order for a lease to be considered capital but Financial Reporting will help with the proper determination.  Operating leases should be coded 03-XX with the sub object code range of 80-89.

Procedure

  • Department chooses to enter into an equipment lease.
  • Department works with Financial Reporting (206-221-7845 or accountg@uw.edu) to determine if the lease should be classified as capital or operating.
  • If determined to be capital:
    • Financial Accounting prepares journal vouchers throughout the life of the lease using the appropriate 09-XX object codes to record principal and interest payments.
    • Within 3-7 days after receipt (unless prior arrangements are made with EIO), department tags each asset over $5,000 and enters it into OASIS as a "T" status asset.  Please see this page for details on the tagging process. The Requisition Number should be '0000000'. The Acquisition Method should be 'LP' for Lease Purchase.
    • Equipment Inventory reviews the OASIS entry for complete information and approves the asset
  • If determined to be operating:
    • Department codes the lease with the appropriate 03-XX object code and 80-89 range sub object code.
    • Within 3-7 days after receipt (unless prior arrangements are made with EIO)t, department tags each asset over $5,000 and enters it into OASIS as an "T" status asset.  Please see this page for details on the tagging process. The Requisition Number should be '0000000'. The Acquisition Method should be 'OL' for On Loan.
      • NOTE:  OL is used for Operating Leases as well as equipment On Loan from another entity.  These items are not the University's to depreciate.  The OL acquisition method is the only one set in OASIS at this time to accommodate this unique requirement.
    • Equipment Inventory reviews the OASIS entry for complete information and approves the asset.

Last updated 02 October 2023