Account for improvements paid by tenant

[ctroknya]

I have a tenant that is paying for a new hvac unit. How/or would I account for this on my books as the landlord? I would think this would be considered in the value of the building but if I didn't actually pay for the hvac would I still have it on my books?

 

[QBCPA75]

This would be considered leasehold improvements, or improvements that will stay with the property after the tenant moves. The improvements would be capitalized by the tenant to that specific leased property. This means even though there is an expense incurred, the amount of the improvements would go on the balance sheet rather than the income statement. Over time, this leasehold improvements expense would be amortized. The following are the steps that would be taken:

1. Determine the cost of the improvements by the tenant
2. Determine the shorter of the life of the lease or the life of the improvement itself
3. Divide the improvement costs by the useful life
4. Debit “Leasehold Improvements” and credit “Cash” or “Accounts Payable” for the amount that was spent on the leasehold improvement
5. Debit “Depreciation Expense – Leasehold Improvements” and Credit “Accumulated Depreciation – Leasehold Improvements” each year by the amount that was calculated in step 3

 

[expertca]

re

This is interesting...

Will the tenant take the unit with him if he shifts?? If so i dont think u can recognise it as an asset? Bcause if this is tha case the tenant has just sought ur permission as athe LL to install the unit which he's paying for... so basically ur just purchasing the unit with his money--- no asse for u. if ur keeping a margin on this then the margin is a commission income for u...

on the contrary if the asset is urs meaning even if the tenant shifts tomorrow u keep the unit then u need to recognise the assetn depreciate...if so i guess the amount the tenant pays should be amortised over the lease period as rent income...

cheers

expertca

 

[sthiravong]

Lease hold improvements paid by tenant

I have tenant that is paying a portion of building improvement. How or would I account for this on landlord's books?

This would be considered leasehold improvements, or improvements that will stay with the property after the tenant moves. The improvements would be capitalized by the tenant to that specific leased property. This means even though there is an expense incurred, the amount of the improvements would go on the balance sheet rather than the income statement. Over time, this leasehold improvements expense would be amortized. The following are the steps that would be taken:

1. Determine the cost of the improvements by the tenant
2. Determine the shorter of the life of the lease or the life of the improvement itself
3. Divide the improvement costs by the useful life
4. Debit “Leasehold Improvements” and credit “Cash” or “Accounts Payable” for the amount that was spent on the leasehold improvement
5. Debit “Depreciation Expense – Leasehold Improvements” and Credit “Accumulated Depreciation – Leasehold Improvements” each year by the amount that was calculated in step 3

 

[The Finance Writer]

You don't account for it on your books as the landlord. The tenant accounts for the leasehold improvement, not you. Instead, you just received an unrealized addition to the value of your building. You realize the gain when you sell the building. The accounting standards for a business are a little different because it must adjust its accounts for changes in value. As an individual, you don't need to concern yourself with those rules.

 

[BrianT]

I liked the explanation made by financial writer..hope this could answer the question of ctroknya