Theory and Practice
✘Does not apply to US GAAP (ASC 410) Finance Leases
✘Does not apply to US GAAP (ASC 410) Operating Leases
✔ Applies to IFRS (IAS 37)
✔ Applies to UK GAAP (FRS 102)
The lessee must restore a property at lease end, projected cost $50,000 in 10 years. If the present value is $30,000 (at 5%). At commencement:
| Account | Debit | Credit |
|---|---|---|
| Right of Use Asset | $30,000 | |
| Provision for Restoration or Dilapadation Liability | $30,000 | |
| Record initial restoration obligation: a provision (liability) at PV of $50k due in 10 years, and include this cost in the ROU asset. | ||
Interest adds over time:
| Account | Debit | Credit |
|---|---|---|
| Interest Expense | $1,500 | |
| Provision for Restoration or Dilapadation Liability | $1,500 | |
| Accrete the provision by 5% each year. The liability will grow from $30k to $50k over 10 years, with interest expense recognized. | ||
Doing it in Sage Intacct Lease Accounting
This can be treated as a separate lease.