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Category: Finance
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Experience:  Tax professional and business consultant for 35 years.
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We are entering into a 5-year lease for our small business

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Hello! We are entering into a 5-year lease for our small business and trying to properly account for the leasehold improvements in QB (i.e. architect fees, permit fees, construction costs, and equipment purchases)
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: I want to make sure these are accounted for properly and clarify whether they are treated as fixed assets or not?
JA: Is there anything else important you think the Accountant should know?
Customer: That is a good start for now.

Hi from Just Answer. I'm PDtax, and can assist.

The easiest place to start is with a 'construction in progress' account that lists all the amounts spent when they are spent. This accumulates all the costs for analysis once the construction is complete.

Once all the work is done, these amounts can be transferred to 'leasehold improvements' and depreciation can start. Any items that do not qualify can be reclassified then.

Now to the costs that likely qualify.

architect fees qualify

permit fees do too

construction costs all qualify

equipment might be a leasehold or simply an equipment purchase. the test has long been if the item is attached to the building, then it might be a leasehold. standalone equipment is not. also, if the landlord expects to keep the item after the lease is done, or if you expect to abandon it, then it is a leasehold.

add to that any legal or professional costs you might have in the lease creation, asset classification, or other behind the scenes professional work like tax lives, etc.

That seems like a good list to start from. If this covers all your questions, please leave positive feedback on our five star scale so i am credited with responding. If you need specifics, please ask.


Customer: replied 1 year ago.
Thank you so much! That does help clarify my questions.... would the 'construction in progress' account still fall under the fixed assets subledger?

yes. I like to use it to accumulate all the costs, as i described. It is in the fixed asset group, but is NOT depreciated. It is typically emptied out upon completion of the improvements.


Customer: replied 1 year ago.
Ok thank you!

You're welcome. Five stars on the rating scale will be appreciated.


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