...and expenditures of leasehold improvements, (2) possible general repair and maintenance costs , and (3) the possible re-instation to the property’s original condition. From the information you have provided, the lease agreement has a duration of 10 years and qualifies as an operating lease in accordance with ASC 840, because there is not an option to renew nor has the ability to negotiate for renewal provided in the lease agreement. Our company has placed into service various leasehold improvements (e.g., temporary walls, HVAC, carpeting) that have economic useful lives of 12 years. The lease agreement contains certain provisions that may require our company to perform general repairs and maintenance on the leased premises, and our company may be required to remove all leasehold improvements such that the premise is reinstated to original condition. Our company’s leasehold improvements will be capitalized and depreciated over their useful lives. The leasehold improvements have an economic life of 12 years, while the term of the operating lease is only 10 years. ASC 840-10-35-6 states that the leasehold improvements should be depreciated over the shorter of the useful life of the asset, or the term of the lease period. The company’s leasehold improvements must be capitalized and depreciated over the shorter of the useful life of 12 years or the length of the lease of 10 years. Therefore, we should depreciate these leasehold improvements over 10 years. These...
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...Case 9-4 How should NeedsSpace account for the two obligations noted as provisions in the lease agreement? ● Provision 1: “Lessor may require the lessee to perform general repairs and maintenance on the leased premises.” By entering the lease agreement, NeedsSpace (the lessee) becomes legally and contractually responsible for performing general repair and maintenance on the leased premises. Assuming that the lessee is required to make deposits to financially protect the lessor concerning the maintenance obligation by setting up a reserve, the guidance in ASC 840-10-05-9A through 840-10-05-9C states that the maintenance reserve shall be recognized as a deposit asset and reimbursed later when the required repair and maintenance is completed by the lessee. However, the provision in the lease agreement does not call upon the lessee to make deposits but simply requires the lessee to perform repair and maintenance on the leased premises. Alternative 1: Accrual Method Since there is a contractual liability for the lessee to perform general repair and maintenance, the maintenance requirement provision may be assumed as a present economic obligation, not just a future commitment. If the fair value estimate of future maintenance expense can be measured with sufficient reliability, the provision may lead to recognition of an accrued liability for the repair and maintenance performance obligation at the inception of the lease. The accrued liability for the repair and maintenance...
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...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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...Brief Summary Needspace entered a operating lease with WeHaveIt for 10-Year Lease term.Lease agreements have certain provisions depending on how the contract is written by the lessor to the lessee and what type of lease agreement. In this lease agreement we are focusing operating lease with provisions of NeedSpace and WeHaveIt, which has a 10 year lease term, no options to renew or negotiate renewal offered in the contract and the lessee incurs certain cost, repairs and maintenance. In regards to ASC 840 leases, according to 840-10-20 and 840-10-05-9A, 840-10-05-9B an operating lease is when the lessor the owner of the property gives the lessee the right to use property, plant or equipment for a limited amount of time. Meaning the lessee is responsible by a legal contract to make repairs and maintain leased property. To make sure the lessee adhere to the contract the lessee has to make financial deposits to the lessor called supplemental rent or maintenance reserves. Furthermore, the lessor is required to repay the lessee when all repairs and maintenance is completed to the extent of the amount of the deposits. In some instances, when the cumulative maintenance costs is less than the cumulative deposits over the period of the lease contract. Upon expiration of the lease the lessor maybe entitled to keep the excess deposits depending on the lease agreement. How should NeedsSpace account for the two obligations noted as provisions in the lease agreement? Analysis and Solution ...
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...rental growth at 3.5% pa. c. Tatweer-ALJLH will raise project CAPEX budget approval for all renovation and construction works (Project) required by the tenant for the existing owned properties. d. Tatweer-ALJLH will earn a development management fee1 of 5% of the total project construction cost. e. Upon completion of the development work, the total development cost (TDC)2 will be bought by (transferred to) the tenant as a leasehold improvement which will be amortized in their books. f. For the project feasibility process purpose by end-user business, ALJLH will provide TDC only. 2. Existing Leased Properties: a. All existing leased properties contracts will remain under the end-user businesses (Tenant) name as a tenant. b. Tatweer-ALJLH will raise project CAPEX budget approval for all renovation and construction works (Project) required by the tenant. c. Tatweer-ALJLH will earn a development management fee of 5%. d. Upon completion of the development work, the total development cost (TDC) will be bought by (transferred to) the tenant as a leasehold improvement which will be amortized in their books. 1 Development management fees is 5% of (construction cost + soft costs (all other costs incurred on the project other than construction cost e.g. design, PM, supervision, statutory fees)), and wherever 5% fee doesn’t cover the associated cost, Tatweer-ALJLH will follow a cost plus model. 2 Total development cost (TDC)= construction cost + soft costs (all other costs incurred...
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...Facts The Sanchez’ entered into a contract with the producers of Surprise Home Renovation to lease their home for one week. The consideration for the lease was $50,000 worth of home accessories and an all-expense paid trip to Disney World. During the lease term, Surprise Home Renovation expensed approximately $250,000 in renovating and remodeling the Sanchez home. The Sanchez’ would like to affirm the potential tax consequences of the engagement with Surprise Home Renovation. Issues 1. Should the consideration of the lease be considered rental income, prize, or neither? 2. Was the consideration received, or a portion thereof, for the leasehold rights taxable? 3. Was the compensation received for the leasehold rights adequate consideration for the lease term? 4. Is the value, or a portion thereof, of the improvements taxable to the homeowners upon reversion? Legal Discussion According of §74 of the Internal Revenue Code (IRC), gross income includes amounts received as prizes and awards, unless the income falls under a particular exception . As of 1954, §74 was enacted, in part, to overrule two cases that held a prize and award to be tax exempt. According to the Code, an exception is granted when a prize is the result of religious, charitable, scientific, educational, artistic, literary, or civic achievement. While it may be considered that the intentions of Surprise Home Renovations are civic and charitable in nature, the fact that the Sanchez’ sought the...
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...IntroductionASC 840, Leases and FASB Statement No. 13, Accounting for Leases covers the standards of financial accounting and reporting for leases by lessee and lessor. A lease is a contract in which the lessor gives the lessee the right to use an asset (property, plant and equipment) for a specified period of time in exchange for periodic rental payments. The lessor is the owner of the property and the lessee is a tenant or renter. Most frequent examples of assets acquired by lease include automobiles, building space, computers and equipment.NeedsSpace entered into a lease agreement with WeHaveIt to rent space for its corporate offices. The lease is classified as an Operating Lease in accordance with ASC 840, Leases and FASB Statement No. 13, Accounting for Leases. What is an Operating Lease? An Operating Lease is when the lessor gives the lessee the right to use leased property for a limited period of time but retain all the risks and the rewards of ownership. The lease also has a 10 year lease term and there is no option to renew nor is the ability to negotiate for the renewal provided in the lease agreement. Lease term defined in FASB 13 states:“The fixed non-cancelable term of the lease plus all periods, if any, covered by bargainrenewal options, all periods, if any, for which failure to renew the lease imposes a penalty on the lessee in an amount such that renewal appears, at the inception of the lease, to be reasonably assured, all periods, if any, covered by ordinary renewal...
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...This is the intoduction I wrote for my acccounting project. Introduction ASC 840, Leases and FASB Statement No. 13, Accounting for Leases covers the standards of financial accounting and reporting for leases by lessee and lessor. A lease is a contract in which the lessor gives the lessee the right to use an asset (property, plant and equipment) for a specified period of time in exchange for periodic rental payments. The lessor is the owner of the property and the lessee is a tenant or renter. Most frequent examples of assets acquired by lease include automobiles, building space, computers and equipment. NeedsSpace entered into a lease agreement with WeHaveIt to rent space for its corporate offices. The lease is classified as an Operating Lease in accordance with ASC 840, Leases and FASB Statement No. 13, Accounting for Leases. What is an Operating Lease? An Operating Lease is when the lessor gives the lessee the right to use leased property for a limited period of time but retain all the risks and the rewards of ownership. The lease also has a 10 year lease term and there is no option to renew nor is the ability to negotiate for the renewal provided in the lease agreement. Lease term defined in FASB 13 states: “The fixed non-cancelable term of the lease plus all periods, if any, covered by bargain renewal options, all periods, if any, for which failure to renew the lease imposes a penalty on the lessee in an amount such that renewal appears, at the inception of the lease...
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...Lease Agreements Background NeedsSpace have entered into a leasing agreement with WeHaveIt to rent space for its corporate offices. Certain provisions have been included within the lease that Needs Space must take into consideration. ASC 840 has defined this lease as an operating lease. Key Facts The lease agreed upon is a 10-year term lease with no option to renew. Furthermore, there is no ability to negotiate for renewal. The following provisions are included in the lease agreement: • “Lessor may require the lessee to perform general repairs and maintenance on the leased premises.” • “Lessor may require the lessee to remove all leasehold improvements such that the premise is reinstated to original condition.” Consequentially, NeedsSpace has placed into service improvements with useful lives of 10 years. These improvements include temporary walls, HVAC system, and carpeting, among others. This lease agreement falls under the ASC 840 rules and subsections and will be referenced as the solution is analyzed. Relevant Issue The case has us utilize accounting literature and financial authority to research the accounting methodology for the two obligations presented in the leasing agreement. Given the economic effect the obligations may have on the counterparty, it is essential to account for these correctly and efficiently. Each obligation presents a unique obligation to the counterparty. These obligations will be examined throughout the solution. Solution ...
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...from China. According to a research from Nielson, China consumer confidence rebounded to 108 in 4Q12 after bottoming out at 105 in 2Q12. Continued strong growth in Indonesia. Sales inIndonesia will continue to be one of the key drivers of growth for FJ Benjamin (FJB). Domestic sales inIndonesia increased 14% yoy. Thegroup intends to open another 11 stores in Indonesia in FY13. Improvement in inhouse brand, RAOUL. The group has resolved the issue of “fitting” in the in-house brand that has previously depressed business. Going forward, we believe RAOUL may see an improvement in its business with the increased international awareness of the brand afterKate Middleton (Duchess of Cambridge) wore a patterned skirt from RAOUL during her visit in Singapore last year. RAOUL’s website page views increased from 355 to 2,596 views in the 24-hour period. Financial results Below expectations. FJB reported a net profit of S$1.14m, down 75% yoy. This is mainly attributed to weakness in its North Asia timepiece business which saw a 36% decline in sales. Excluding the one-time gain on sale of leasehold property, FJB’s net profit is S$0.22m. Yoy revenue down 12%. Turnover for fashion and timepiece was down 1% and 30% yoy respectively. Gross margins remained stable at 43%. Other operating costs were lower, in line with the decline in sales, except for rental which rose 12% yoy.Advertising and promotionexpenses were also lowered in line with management’s cautious outlook. Earnings...
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...ABC Lease Case ISSUE: Based on the ASC48,the agreement between ABC Inc. and Landlord LLC is operating lease. The cost of tenant improvements construction is treat as rental expense. BRIEF BACKGROUND OF COMPANY * ABC Inc. entered into an agreement with Landlord LLC to lease 40% of a building located in San Francisco. In addition, ABC Inc. wanted to make a improvements to the lease building to meet ABC's design specifications. The tenant improvements are for general purpose, but structural. The total estimated budget for tenant improvements is about $37 million * ABC and Landlord made a "work letter" show the details of the tenant improvements construction: * The lease start at 09/30/2010. The original lease term extends for 7 years from the inception date. In addition, the lease contains two 5-year renewal options, the first at 95% of fair value at the time of renewal. * The estimated budget for the TIs specified by ABC is approximately $37 million. The Landlord agreed to fund up to a total of $13 million for the TI construction as a tenant incentive. * The Landlord is overseeing the construction and directly pay all of the TI costs and will also invoice ABC for any amount over their agreed upon contribution amount. * Based on ABC’s design specification and agreed to deliver the facility in two phases, the first of which is targeted to be completed by Q3 2011 for approximately 250,000 square feet, and the second of which is targeted...
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...Response to Expression of Interest To provide office space in Atlanta Metro Area PROJ598 – 22 April 2013 Submitted to: William B. Jones, Leasing Specialist Solicitation Number: 3GA0233 Submitted by: William B. Jones 11330 Lakefield Drive Building Two, Suite 200 Atlanta, GA 30097 Telephone: (770) 814-4466 Fax: (866) 251-892 Email: joneswil@oriis.com Table of Contents 1. SUMMARY OF PROPOSAL 3 1.1. Company Safety Program 3 1.2 Company background and relevant experience with Government Real Estate Acquisition 4 1.3. Report capabilities 4 1.4. References 4 1.5. Financial Information 4 2. Response to scope 4 3. Proposed Pricing 5 4. Other 6 4.1. Building requirement 6 4.2. Building location 6 4.3. Lease 6 4.4. Flood plain 6 4.5. Remaining issues 6 Attachments: Building location 7 Lease 16 1. Summary of proposal Office, Retail, Industrial & Investment Sales, LLC, is pleased to offer our bid to provide office space to the General Service Administration (GSA) in the Atlanta Metro area, Solicitation number: 3GA0233.. William Jones is Co-Owner and Principal Office, Retail, Industrial & Investment Sales, LLC, and has been involved in the commercial real estate industry since...
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...This case involves Peter Poyck verses Stan and Michelle Bryant. Poyck was an owner and landlord of a condominium unit, No. 5-D, located in a building at 22 West 15th Street, New York City. Poyck leased his unit to the Bryants and after three years of the tenants living there; they decided to sign another two-year lease. A few months into the new lease, new neighbors moved in next-door, unit No. 5-C. The new neighbors were smokers and constantly smoked in the fifth floor hallway, a common area, and in their apartment. The secondhand smoke penetrated into the Bryants unit causing them to complain to the building’s superintendent. The superintendent spoke with the smokers, but they refused to listen. The smoking continued so the Bryants decided to contact their landlord, Poyck, to see if he could rectify the issue. Poyck took no action; therefore, the Bryants vacated the premises with sixteen months still left on their lease. Poyck, the plaintiff, sued the Bryants, the defendants, for the unpaid rent. The Bryants argued that the secondhand smoke breached the implied warranty of habitability and thus caused constructive eviction. Constructive eviction is used in the law of real property to describe a circumstance in which the landlord does something or fails to do something that he has a legal duty to provide rendering the property uninhabitable. The landlord made a motion to strike the Bryants’ defense of breach of the implied warranty of habitability and constructive...
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...Building Better Home Improvement Experiences 2012 ANNUAL REPORT Building Better Home Improvement Experiences Learn more by visiting our online Annual Report at www.Lowes.com/2012annual or scan the QR code with your smartphone. Shareholder Letter Great customer experiences start with our associates, whether they interact with customers face-to-face or work tirelessly behind the scenes to simplify the complex business of home improvement. And together, Lowe’s associates are building better home improvement experiences. We’ve laid the foundation to transform our core business over the past two years, and we will continue our efforts in 2013 and beyond. We expect to generate compelling returns for shareholders as we further align our people, processes and financial resources to provide better home improvement experiences. 2012 PERFORMANCE We delivered solid performance in 2012. Comparable store sales grew 1.4% and total sales grew 0.6% to $50.5 billion. Net earnings increased by 6.5% to $2.0 billion and diluted earnings per share increased 18.2% to $1.69. Operating cash flows, along with the net issuance of $1.4 billion of long-term debt, were used to acquire $1.2 billion in fixed assets and return $5.1 billion to shareholders through dividends and share repurchases. Robert A. Niblock Chairman of the Board, President and Chief Executive Officer OUR PROGRESS Our transformation is centered on the customer. In the inspiration phase of a project, customers realize...
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...ATM LEASE AGREEMENT This Agreement is made and entered into effective as of __________, 20__ by and between the City of Highland Park, a(n) Unit of local government, having its principal office at 1707 St. Johns Ave. Highland Park, Illinois 60035 (“Customer”); and National City Bank, a national banking association, having its principal office at 1900 East Ninth Street, Cleveland Ohio 44114 ("National City"); RECITALS A. Customer desires to make a portion of the premises it leases from the Union Pacific Railroad Company (“Landlord”) pursuant to a lease agreement between Landlord and Customer dated June 19, 1995 located at 1700 St’ Johns Ave. Highland Park Illinois 60035 (the “Property”) available to National City for the installation and operation thereat of an Automated Teller Machine, (the "Machine"”), which will dispense cash and perform such other functions generally done by such Machines B. National City desires to lease such space from Customer; C. Landlord has granted its consent to Customer to enter into this agreement with National City; In Consideration of the mutual covenants and promises herein contained, the parties hereby agree as follows: 1. Leased Premises. Customer hereby leases to National City and National City leases and takes from Customer approximately 12 square feet of space situated on the Property as referenced by Exhibit A attached hereto and made a part hereof (the " Leased Premises"). The Leased Premises shall be used...
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