Page 64 - 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)

Lease Liabilities:

The City is a lessee for a noncancellable lease of equipment. The City recognizes a lease
liability and an intangible right-to-use lease asset (lease asset) in the government-wide
financial statements.

At the commencement of a lease, the City initially measures the lease liability at the
present value of payments expected to be made during the lease term. Subsequently,
the lease liability is reduced by the principal portion of lease payments made. The lease
asset is initially measured as the initial amount of the lease liability, adjusted for lease
payments made at or before the lease commencement date, plus certain initial direct
costs. Subsequently, the lease asset is amortized on a straight-line basis over its useful life.

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

• The City uses the interest rate charged by the lessor as the discount rate. When the
interest rate charged by the lessor is not provided, the City generally uses its estimated
incremental borrowing rate as the discount rate for leases.

• The lease term includes the noncancellable period of the lease. Lease payments
included in the measurement of the lease liability are composed of fixed payments
and purchase option price that the City is reasonably certain to exercise.

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

SBITA Liabilities:

The City is in agreements for a noncancellable right to use various external software. The
City recognizes a SBITA liability and an intangible right-to-use SBITA asset (SBITA asset)
in the government-wide financial statements.

At the commencement of a SBITA, the City initially measures the SBITA liability at the
present value of payments expected to be made during the agreement term. Subsequently,
the SBITA liability is reduced by the principal portion of SBITA payments made. The SBITA
asset is initially measured as the initial amount of the SBITA liability, adjusted for SBITA
payments made at or before the SBITA commencement date, plus certain initial direct
costs. Subsequently, the SBITA asset is amortized on a straight-line basis over its useful
life.

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

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