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Topic: Becker question Chpt. 4 - Bay Co. (

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leslie4real
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Joined: 13 Nov 2005
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Posted: 05 May 2012 at 16:24 \| IP Logged

On January 1, 1989, Bay Co. acquired a land lease for a 21-year period with no option to renew. The lease required Bay to construct a building in lieu of rent. The building, completed on January 1, 1990, at a cost of $840,000, will be depreciated using the straight-line method. At the end of the lease, the building's estimated market value will be $420,000. What is the building's carrying amount in Bay's December 31, 1990, balance sheet?

Correct Answer: 798,000

My question is that in Chapter 5 leasehold improvements made i liew of rent is expensed (also confirmed by Wiley). Why are they capitalizing this particular leasehold improvements.

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astone
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Posted: 06 May 2012 at 11:47 \| IP Logged

The Becker book states 'The value of leasehold improvements should be capitalized and added to the property, plant and equipment section or the intangible assets section of the balance sheet".

Do you have an example of a problem where leasehold improvements are expensed?

leslie4real
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Posted: 06 May 2012 at 18:36 \| IP Logged

Hi thanks for the reply. My issue is with the "In lieu of Rent" part. Wiley and Intermediate accounting books state that Leasehold improvements in lieu of rent is expensed. This is where i'm stocked, because Wiley also states that a leasehold improvement can extend to the construction of a new building.

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