Our lease has a provision related to tenant improvement allowance whereby if we utilize the allowance, we need to pay the Landlord back equal monthly (“TI Rent”) payments with 8% interest. How would you account for this under ASC 842?
TI Rent accounting
All Replies
Viewing 1 replies (of 1 total)
- You must be logged in to reply to this topic.
The accounting depends on if the tenant improvements are the Landlord’s improvements or the Company’s. If the tenant improvements belong to the Landlord (they keep it at the end of the lease and use it for other future tenants), then the TI Rent is considered a lease payment used to calculate the lease liability under ASC 842. This is because you are essentially paying them for the right to use the improvements. If the tenant improvements are the Company’s, then you would put them on the books as PP&E and record a liability for the tenant improvement allowance that the Landlord funds. In this scenario, it would essentially be considered a financing.