NeedsSpace Case 9-4
NeedsSpace is leasing space to rent corporate offices from WeHaveIt. According to ASC 840, NeedsSpace has entered into an operating lease with a lease term of 10 years as defined by the Glossary in ASC 840 (paragraph 5(f) of Statement 13). The lease will be terminated at the end of the 10 year term and NeedsSpace will not be given the option to renew. The lease agreement specifies that the lessee may have to perform certain tasks at the cost of the lessee when the lease term concludes. The 1st provision being that the lessee NeedsSpace may have to repair and perform maintenance on the grounds leased. To make the leased property more suitable for business, leasehold improvements such as temporary walls and carpet was installed. This leads to the 2nd provision that may require NeedsSpace to revert the leased grounds back to its original state, at the end of the term.
Entering into a lease agreement with WeHaveIt, NeedsSpace is legally and contractually responsible for making any needed general repair and maintenance on the grounds they are leasing. In the event, that it is necessary for NeedsSpace to makes deposits to safeguard the lessor, by creating a backup maintenance fund, ASC 840-10-05-9A through 840-10-05-9C states that the funds would be considered a deposit asset and reimbursed when the actual repair and maintenance is performed. As far as the provision goes, it only indicates that the lessee has to perform maintenance not make deposits. The obligation can be assumed as a current economic obligation and not necessarily a future commitment. If the future maintenance cost can be reliably predicted, the provision may result in an accrued liability at the inception of the lease. When the maintenance has been performed by some form of payment the liability will be expensed and removed from the lessee’s balance sheet. If the expenses cannot be predicted the lessor may forgo recognizing a maintenance liability at the inception of the...
Please join StudyMode to read the full document