AccountingBLOCK - Tax and Accounting Forums

We have some leasehold improvements purchased in 2007 and we've been depreciating at a faster rate because our building lease was to expire at 12/31/10 and we thought we would move out. Well, in the middle of 2009 we renewed(extended) our lease to 6/30/14. I'm working on closing out 2009 and my question is, should I be depreciating at the same monthly rate (as in 2007 and 2008) or change it so it won't be fully depreciated until 6/30/14? And since 2007 and 2008 have been closed out I don't need to go back and reinstate, correct?

Hey there,

Im not a professional accountant, but I recently did an assignment on just this subject, and this is my 2 cents. As far as depreciation goes, the formula you should follow is,
Cash Assets - Residule Value
Estimated Years of Usefulness

So in your situation, I believe, the depreciation value, is going to remain at what it was.

But! Dont take my word 100%, lets hope an actual accountant can weigh in on this, (Im just a student)...anyways, thats all for now! And Id certainly be interested in a more thorough answer if someone can provide a better one.

Thanks!

Your current monthly amortization is correct and it is correct to have it run out and then the lease extension period starts. So you say - hey - then there will be no amortization of leasehold over the lease extension period?!

And that's correct - there will be no amortization over the lease extension period.

Consider this: if you bought a tractor and depreciated it over 5 years and then used it for 2 years past that there will likewise be no depreciation expense for those last 2 years. Right? Right!

Last of all - since you are not going to change the current monthly leasehold amortization anyway then there is nothing to "restate" for prior years. But keep in mind that a restatement is a big thing and would require that soimething reported in a prior year was so horribly incorrect that a restatement is needed. A typical leasehold transaction is not this type of event.

Hey Zyzzx,

Thanks for this answer, this was definitely useful for me as well!