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  • 1.  Depreciating Leasehold Improvements

    Posted 06-18-2025 01:47 PM

    Does anyone have any experience with depreciating leasehold improvements? Our auditors are requesting we change to depreciate over the life of the current lease, however we normally depreciate over 15 years. Any insight as to how you handle this would be helpful. Thank you!



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    Thomas Kubus CMA
    Analyst
    Scott Township PA
    United States
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  • 2.  RE: Depreciating Leasehold Improvements

    Posted 06-19-2025 12:47 AM

    We have always used the life of the lease, straight line - as it is in line with the expected life and usefulness of the asset to the client.  When I was auditing, that was in our guidance from the firms



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    Lydija Dahl CMA, CIA, CISA
    Consultant
    Calgary AB
    Canada
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    Original Message


  • 3.  RE: Depreciating Leasehold Improvements

    Posted 06-19-2025 01:06 AM
    Edited by Stephen Hall 06-19-2025 01:06 AM

    From PWC's website:

    In accordance with ASC 842-20-35-12, leasehold improvements are amortized over the shorter of the useful life of those leasehold improvements and the remaining lease term. However, if the lease transfers ownership of the underlying asset to the lessee or the lessee is reasonably certain to exercise an option to purchase the underlying asset, the lessee should amortize the leasehold improvements to the end of their useful life. Leasehold improvements for a lessee in a common control lease are required to be amortized over their useful lives to the common control group regardless of the lease term as long as the lessee controls the use of the underlying asset through a lease.



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    Stephen Hall CMA,CPA
    Chief Financial Officer
    Las Vegas Review-Journal, Inc.
    Las Vegas NV
    United States
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    Original Message


  • 4.  RE: Depreciating Leasehold Improvements

    Posted 06-19-2025 05:47 AM

    Hi Thomas,

    Keeping in mind that depreciation expense is treated primarily as an "estimation", I would just take the NBV of the lease asset today and depreciate that amount over the remaining term rather than the balance of the 15 years. Let me know if you have any other questions.



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    Brandon Lane CMA
    Accountant
    Tiffin OH
    United States
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    Original Message


  • 5.  RE: Depreciating Leasehold Improvements

    Posted 06-19-2025 09:40 AM

    There are several lease accounting apps out there that manage lease asset depreciation. The one I use is LeaseQuery, part of the FinQuery suite. We can have a discussion about the software options and lease accounting. Several others have already provided the rules for lease accounting. I have been handling the lease accounting fir my clients for the last 17 years.



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    David Belnap, CMA, CSCA, CPA
    David.Belnap@...
    Pembroke Pines, FL
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    Original Message


  • 6.  RE: Depreciating Leasehold Improvements

    Posted 06-20-2025 12:11 AM

    Hi, David, 

    Hello, my name is Kathy (Rong) Turner, CMA. I currently work for a nonprofit organization.

    Our organization is in the process of updating our lease accounting practices in accordance with ASC 842. I would greatly appreciate any insights or experiences you might be willing to share-I'm eager to learn from your expertise.

    Thanks, 

    Kathy 



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    Rong Turner CMA, CFM
    Director/Manager
    Potomac MD
    United States
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    Original Message


  • 7.  RE: Depreciating Leasehold Improvements

    Posted 06-19-2025 09:48 AM

    Yes that is correct. We always amortized our LI based on the life of the lease. 



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    Leslie Conner CMA
    Vice President
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    Original Message


  • 8.  RE: Depreciating Leasehold Improvements

    Posted 06-19-2025 12:44 PM

    Hi Thomas,

    In one of my previous employment experiences, I dealt with leasehold improvements. We would depreciate the improvement based on the lease term. If the asset is depreciated longer than the lease term, there is a risk the lease isn't renewed and the asset would have no value at that point. That could lead to a significant fixed asset loss as we didn't recognize the value of the asset over its actual useful life.

    If memory serves me correctly, the lease term we used would include any optional renewal periods if we believed it was more than likely we'd renew the lease for the optional renewal period.

    The only caveat would be if the leasehold improvement has a useful life less than the lease term. In that case, we'd use the useful life of the leasehold improvement.

    Another thing to keep in mind is to periodically review if the asset has become impaired. For example, the leasehold improvement is being depreciated over the next 5 years but we expect to end the lease in a year. In that case, the asset has become impaired and should go through an impairment analyze. For example, to recognize the loss now or adjust the remaining depreciation life to a year.

    Hope this helps!



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    Kimberly Nygard CMA, CPA
    Regional Controller
    United States
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    Original Message


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