Title: How to account for leasehold improvements — AccountingTools
Headings: How to account for leasehold improvements
How to account for leasehold improvements
Example of the Accounting for Leasehold Improvements

Content: How to account for leasehold improvements — AccountingTools
April 10, 2021
How to account for leasehold improvements
April 10, 2021
/ Steven Bragg
Leasehold improvements are defined as the enhancements paid for by a tenant to leased space. Examples of leasehold improvements are: Interior walls and ceilings
Electrical and plumbing additions
Built-in cabinetry
Carpeting and tiles
Leasehold improvements generally revert to the ownership of the landlord upon termination of the lease, unless the tenant can remove them without damaging the leased property. An example of leasehold improvements is offices constructed in unfinished office space. When you pay for leasehold improvements, capitalize them if they exceed the corporate capitalization limit. If not, charge them to expense in the period incurred. If you capitalize these expenditures, then amortize them over the shorter of their useful life or the remaining term of the lease. The remaining term of the lease for amortization purposes can be extended into additional lease renewal periods if the renewal is reasonably assured (such as when there is a bargain renewal option ). If you subsequently purchase the building, the lease is presumably dissolved, so you can then amortize over the estimated remaining useful life of the building, which is likely to be a much longer period than the term of the original lease, resulting in a significantly smaller monthly charge. Technically, you are amortizing leasehold improvements rather than depreciating them.