accounting for leasehold improvements

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our company is moving to a different building which we will be renting with a possibility of purchase in the far future, we are planning on putting up new tiles,putting up partitions, painting,electicrical and plumbing works. this will be quite a substantial amount of money. how are we going to treat these costs in our books and what accounting standard can be used as justification? the landlord is giving the building to us as is and so will not bear these costs. help.
 

kirby

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You are going to spend money on improvements to a leased space. Certainly, those improvements will be used for some time to come. So they are not immediately expensed but are capitalized in an Asset Account called "Leasehold Improvements." Then you amortize that cost straight-line over the lesser period of 1) the useful life of the assets or 2) the lease term ( can be tricky here as you get to use the term of the lease INCLUDING renewal periods IF it is clear that you will more than likely renew).

Looking for a FASB standard? Well sorry this method is time honored and the closest you can get to a cite is the FASB Concepts Statement. Again, not going to be a problem to "defend" capitlaizing your costs as other accountants will be familiar with the method.
 

bklynboy

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You may also need to set up an asset retirement obligation (ARO) to put the premises back in the same condition before you rented.
 

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