USA LANDLORD REIMBURSED MONEY

[ag_cpa]

Hello All,

Lets say a client enters into a lease to rent out space for a restaurant. Rent every month is $50,000. So far, the renters have put in $1,000,000 into leasehold improvements (repairing and making the space to their liking).

6 months pass before the landlord took notice of all the changes and decided to reimburse them $150,000 because the improvements they made increased the value of his property. My question is, as an accountant I have 2 options I believe. The first is to take the $150,000 reimbursement and deduct it from Rent Expense. The other option is to take it out of Leasehold Improvements which is a depreciable asset.

What is the proper way of taking into account the reimbursement?

Thank You,
Jay

 

[kirby]

The landlord's purpose behind paying $150K is due to the improvements. Accordingly, I would reduce the Leasehold Improvement asset. i would think that the landlord would have also required your client to agree to not remove the improvements at the end of the lease in exchange for the payment. So you might want to ask the client if this was so as that would confirm the treatment of applying the credit to the improvements.