Capitalization

[naseemaslam.pk]

We have shops on rent and we renovate shops as well. Should renovation of shop be capitalized?

 

[thepunisher93]

So the shop is on rent and you renovated it on your own expense?
I think it will be capitalized

 

[bklynboy]

Leasehold improvements are capitalized and amortized over the shorter of expected life or the lease term. If their are renewal clauses that are reasonably assured these are considered part of the lease term.

 

[hankas]

bklynboy is right. It should be capitalized and amortized. Adding to that, if the renovation cost is not very significant, you may write it down as an expense right away.

 

[Cheaper Accountant]

If you own the shops and renovate them then this will be capitalised. However general repairs and maintenance which simply maintain the standard of the shop such as painting and decorating tend to be expensed rather than capitalised.

 

[jfuertes]

I want to add a discussion here,

You think appropiate account as an assets under operating leases? I want to hear your opinions

 

[Triest123]

I want to add a discussion here,

You think appropiate account as an assets under operating leases? I want to hear your opinions

Normally speaking, if the assets are under operating leases, the leasee should treated
them as "rental charge" rather recognise them as company's assets as the
ownership & the risks of such assets are not transferred to the leasee.
In other words, the leasee should return the assets to the leasor after the end of the lease.

So the lease for the shop is the rental charge, but the "renovation and the decoration" for
the shop is the company's asset. It is because the ownership and the risks for such assets
are belonged to the company. So, they can be capitalised and depreciated over its lease period.