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Case Project

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Submitted By curtford1
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Case Project

Memo:

To: Joe Carpet of NeedMoreRoom, Inc.
From:
Date: August 5, 2012
Subject: Accounting for lease obligation

The proper treatment for the first provision in the lease agreement stating, “Lessor requires the lessee to perform general repairs and maintenance on the leased premises.” It should be addressed as follows:

The proper treatment for the second provision in the lease agreement stating, “Lessor requires the lessee to remove all leasehold improvements such that the premises are reinstated to original condition.” It should be addressed as follows:

840-20-25-11

Leasehold improvements are investments made to customize buildings and offices occupied under operating lease contracts to make them suitable for the intended purpose. The present value of estimated reinstatement costs to bring a leased property into its original condition at the end of the lease, if required, is capitalized as part of the total leasehold improvements costs. At the same time, a corresponding liability is recognized to reflect the obligation incurred. Reinstatement costs are recognized in profit and loss through depreciation of the capitalized leasehold improvements over their estimated useful life.
With the exception of investment properties, property and equipment is carried at cost less accumulated depreciation and accumulated impairment losses and is periodically reviewed for impairment. The useful life of property and equipment is estimated on the basis of the economic utilization of the asset. Property and equipment is depreciated on a straight-line basis over its estimated useful life as follows
Leasehold improvements: Residual lease term, but not exceeding

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