USA Lease Accounting Question

[pochen23]

Hello,

First time posting here. Here is a pretty unique situation from one of my clients:

"The Landlord is required to deliver a turnkey store. The Landlord’s construction financing is set to close 8/24/2012, but we want the Landlord to start its work ahead of time so we can open in the fall. We would have to take possession now without the work complete and loan or advance the Landlord construction costs so it can get started now and complete the construction prior to the fall. Funds advanced to Landlord would be repayable when the Landlord’s construction loan closes. If the Landlord fails to repay us when its construction loan closes or by 8/24/2012, the lease would provide that we could offset the amount due with interest against rent under the lease."

The question would be, is there any specific accounting treatment for this kind of senario?

Any input and suggestion would be appreciated. Thank you very much.

 

[kirby]

Not a lease accounting issue. Your company is simply going to give money to the Landlord. So you will record a loan/advance on your books and you have to find if you get to earn interest on that.

Just FYI - bigger issue is that while Bank is taking the time (8/24/12) to properly protect itself ( by getting Landlord's financials, debt covenants, and probably getting liens on the construction) - your top dogs are probably doing none of that and just handing over the dough to the Landlord. This is NOT something you should point out to your managment ( they - of course - "know better" - and you'll just get yourself in trouble.)