Page 62 - Moreno Valley 2025 Annual Financial Report

City of Moreno Valley, California

Notes to Financial Statements
For the Year Ended June 30, 2025

Note 1. Organization and Summary of Significant Accounting Policies (Continued)

At the commencement of a lease, the lease receivable is measured at the present value of
payments expected to be received during the lease term. Subsequently, the lease receivable
is reduced by the principal portion of lease payments received. The deferred inflows of
resources are initially measured as the initial amount of the lease receivable, adjusted for
lease payments received on or before the lease commencement date. Subsequently, the
deferred inflows of resources are recognized as revenue over the life of the lease term in
a systematic and rational method.

Key estimates and judgments include how the City determines (1) the discount rate it
uses to discount the expected lease receipts to present value, (2) lease term, and (3) lease
receipts.

• The City uses incremental borrowing rate (IBR) provided by the financial institution on
July 1, 2021 for existing leases or the current rate at the time a new lease is executed.

• The lease term includes the noncancellable period of the lease plus any option periods
that are likely to be exercised.
• Lease receipts included in the measurement of the lease receivable are composed of
fixed payments from the lessee.

The City monitors changes in circumstances that would require a remeasurement of its
lease and will remeasure the lease receivable and deferred inflows of resources if certain
changes occur that are expected to significantly affect the amount of the lease receivable.

Inventory and Prepaid Items:

Inventory in proprietary funds consist of expendable supplies held for consumption.
Proprietary funds value inventory at cost and expense supply inventory using the first-
in/first-out (FIFO) method. This is referred to as the consumption method of inventory
accounting. The governmental fund types use the purchase method to account for supply
inventories, which are not material.

Payments to vendors for services benefiting future periods are recorded as prepaid items
in both governmental and proprietary funds and expenditures are recognized when item
are consumed. The fund balances in the governmental fund types have been set aside as
nonspendable for amounts equal to the prepaid items in the fund- level statements, since
these amounts are not available for appropriation.

Capital Assets:

Capital assets, which include property, plant, equipment and infrastructure assets (e.g.
roads, bridges, sidewalks and similar items), are reported in the government-wide financial
statements. Capital assets are defined by the City as assets with an initial, individual cost
of $10,000 or more and an estimated useful life in excess of three years. Such assets
are recorded at historical cost or estimated historical cost if purchased or constructed.
Donated capital assets are recorded at acquisition value at the date of donation. Donated
infrastructure assets are recorded at estimated acquisition cost provided by the developer.

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