Captial Vs. Operating Expense

[BalanceSheep]

Over the past year our landlord made repairs to the air conditioning system totaling more than $10,000 in costs. In the previous year air conditioning system repair costs were only about $1,000.

As tenant my company is required to pay for all operating expenses. The landlord is claiming that the repair expenses are operating expenses and that my company needs to pay the full $10,000 now. It seems to me that the expenses should be capital expenses and depreciated over a number of years.

I'd appreciate your opinion.

 

[og954]

I agree with you that the $10,000 figure does not seem like a maintenance/routine operating expense. Unless your company's contract with the landlord specifically states that your company is responsible for the cost of repairing the air conditioning unit, I believe that the landlord is responsible for the repair costs and record it as a capital expense.