Thread: need help calculating leasehold depreciation

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!

Originally Posted by beancounter2

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?

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!

Originally Posted by zyzzx

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.