[Kelvinb]

During January 20X1, Yana Co. incurred landscaping costs of $120,000 to improve leased property. The estimated useful life of the landscaping is 15 years. The remaining term of the lease is eight years, with an option to renew for an additional four years. However, Yana has not reached a decision with regard to the renewal option. On Yana’s December 31, 20X1, balance sheet, what should be the net carrying amount of landscaping costs?

I got this question wrong because I thought the definition of a leasehold improvement was to the interior of a building.

Can anyone reference the codification showing that landscaping is included in the definition of a leasehold improvement?

[Andyred04]

Regarding your question, I've never seen anything in either my Gleim textbook or Ninja Notes stating that the definition of a leasehold improvement was the interior of a building. Actually, my Gleim book states that a leasehold improvement could even include a building that was built on leased land. However, I'm not so sure this question is asking whether or not the improvements are capitalizable. The question is asking what the carrying amount of the improvements is. Since the remaining term of the lease is < the estimated useful life of the landscaping, you would depreciate the $120,000 over the remaining term of the lease. Therefore, to answer the question, the carrying amount of the improvements is $105,000 (due to a $15,000 depreciation expense on the asset during the year).

Hope that helps!

FAR: 80 (Gleim, Ninja Notes, Ninja MCQs)
REG: 87 (Gleim, Ninja Notes, Ninja MCQs)
BEC: 87 (Gleim, Ninja Notes, Ninja MCQs)
AUD: 8/27/16

PA Candidate

[Author]

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