New window blinds in a leased office
Question
We took an office under the lease and we installed the new window blinds.
How do we treat the expenses for the window blinds?
Do we add it to the ROU asset? Or directly in profit or loss as an expense?
Answer
These window blinds are in fact a leasehold improvement and yes, you can capitalize them as a separate item of PPE, not as a part of ROU asset.
You would do the same even if the lease is short-term and you apply the accounting exemption (i.e. you do not account for ROU asset, but all the lease payments go straight in profit or loss) – you can still treat these improvements as PPE if they meet that definition.
Just be careful about the depreciation of your leasehold improvement.
You should depreciate it over their useful life or the lease term, whichever is shorter.
That is logical, because if the blinds will be usable for 8 years, but your lease term is 3 years and then you leave, you will stop using these blinds (I assume you will not take them with you since they are fixed to the windows).
Tags In
JOIN OUR FREE NEWSLETTER AND GET
report "Top 7 IFRS Mistakes" + free IFRS mini-course
Please check your inbox to confirm your subscription.
5 Comments
Leave a Reply Cancel reply
Recent Comments
- Silvia on How to Account for Decommissioning Provision under IFRS
- Silvia on What is the lease term of cancellable property rental contracts under IFRS 16?
- James Carter on How to Account for Decommissioning Provision under IFRS
- Moses Felix on IAS 16 Property, Plant and Equipment – summary
- Moses Felix on Summary of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Categories
- Accounting Policies and Estimates (14)
- Consolidation and Groups (24)
- Current Assets (21)
- Financial Instruments (54)
- Financial Statements (48)
- Foreign Currency (9)
- IFRS Videos (65)
- Insurance (3)
- Most popular (6)
- Non-current Assets (54)
- Other Topics (15)
- Provisions and Other Liabilities (44)
- Revenue Recognition (26)
Hi Sylvia, Just a question on this. We have a lease for 5 years with a lease incentive of 100k to be paid by the lessor when some fit-outs have been completed by lessee (these will be lessee asset), we are not sure when these fit-outs will be completed. What should be initial recognition for ROU and LL and subsequent recognition when incentive is received by lessor
Hi Hannah,
if you reasonably assume that you will complete fit-outs (and there is some written decision on that to prove the intention), then you can adjust the lease payments and ROU asset for incentives. Also, it depends on the terms of the lease contract – what does it say precisely with regard to fittings? Are some further steps required from the lessor, or does the deal depend just on the lessee? If that’s up to you, then you should make a reasonable decision at the contract commencement.
Hello Silvia,
Consult, always such leasehold improvements are property, plant and equipment for the lessee? if they are not, and the lessor does not
reimburse such expenditures , what would be the appropriate treatment for lessee and lessor in general terms, please?
Hi Sylvia,
if the lease term is initially set to 2 years, and we have continuous leasehold improvements, for example, 6 months before the end of the lease, is the useful life of the leasehold improvement asset just 6 months? Thank you,
Hi Sylvia,
If the lease was short-term and the payments were booked to P&L, the shorter of the blinds’ useful life and the lease term would be one year. In that case would we capitalise the blinds and depreciate them over one year? This then does not seem consistent with the definition of a fixed asset.
Many thanks