If the lease requires that the company remove the leasehold improvements at the end of the lease, wouldn’t that be an asset retirement obligation under ASC 410 and not under ASC 842?
Asset retirement obligation or lease payment
All Replies
Viewing 1 replies (of 1 total)
- You must be logged in to reply to this topic.
Asset restoration costs are included in lease payments while asset retirement obligations are accounted for outside of the lease. Asset restoration costs are when there are pre-existing leasehold improvements (i.e. the lessor’s leasehold improvements) that the company is obligated to remove at the end of the lease term. These costs are included in the lease payments. Asset retirement obligations, on the other hand, are when the underlying asset has been modified by the lessee (i.e. leasehold improvements are recognized on the lessee’s balance sheet), and the company is obligated to return the underying asset to their original condition. These costs should not be included as part of the lease payments and will be accounted for as AROs.