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CITY OF PARIS, TEXAS Notes to Financial Statements (Continued) September 30, 2025 1. Sununai_y-Rf,S$igLiifwAiit.&�;gq ling Policies (Continued) G. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance (Continued) 7. Leases The Government Accounting Standards Board defines a lease as a contract that conveys control of the right to use another entity's non-financial asset as specified in the contract for a period of time in an exchange or exchange -like transaction. MMEMM The City is a lessor for non -cancellable leases of equipment. The City recognizes a lease receivable and a deferred inflow of resources at the beginning of the lease term in the government -wide and governmental fund financial statements. In general, the lease receivable and deferred inflows of resources are measured at the present value of the lease payments expected to be received during the lease term. The City remeasures the lease receivables at subsequent financial reporting dates if one or more of the following changes have occurred at or before the financial reporting date: change in the lease term; change in the interest rate the lessor charges the lessee; and/or change in future contingency lease payments to fixed payments for the remainder of the lease. The key estimates and judgments related to leases include how the City determines the discount rate it uses to discount the expected lease payments to present value, lease term, and lease payments. The City uses its estimated incremental borrowing rate as the discount rate for leases unless the rate is stated in the lease agreement. The lease term includes the non -cancellable period of the lease. Lease payments included in the measurement of the lease receivable are composed of fixed payments from the lessee, Leases with periodic percentage rent increases or flat rate increases that are specified in the lease terms are included in the measurement of the lease receivable. The City calculates the amortization of the discount on the lease receivable on a straight-line basis over the term of the lease and reports that amount as an inflow of resources for the period. Any payments received are allocated first to the accrued interest receivable and then to the lease receivable. This recognition does not apply to short-term leases, contracts that transfer ownership, leases of assets that are investments, or certain regulated leases. The City accounts for the partial or full lease termination by reducing the carrying values of the lease receivable and related deferred inflow of resources and recognizing a gain or loss for the difference. However, if the lease is terminated as a. result of the lessee purchasing an underlying asset from the City, the carrying value of the underlying asset should be derecognized and included in the calculation of any resulting gain or loss. Leases that are considered a short-term lease (12 months or less) are not included in the measurement of the lease receivable. The City recognizes short-term lease payments as revenues based on the payment provisions of the lease contract. Liabilities are only recognized if payments are received in advance, and receivables are only recognized if payments are received subsequent to the reporting period. 36