Needs Space 9-4

In: Business and Management

Submitted By airman2k2
Words 772
Pages 4
09-4 Needs Space: Accounting for 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
As an operating lease, NeedsSpace will not record an asset or a liability (off balance-sheet). They must also disclose future minimum lease payments and total minimum rentals, as well as a general description of the lessee’s arrangements.
Also per ASC 840-15-17:
If an arrangement contains a lease and related executory costs, as well as other non-lease elements, the…...

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