Leashold Improvements

Hi,

Our business relocated and signed a 7 year lease. As the building required renovations before we could occupy we acquired a bank loan to cover the cost of a portion of the renos. Overall the renos were about $40,000 more than the loan received. As this is a new process for me I want to ensure that I'm entering the transactions correctly  in Sage. 

*The loan would be set up as a long term liability loan and the principal payment would go against the liability showing the interest as an expense.

*The renovations would be considered a leasehold improvement which would reduce monthly based on the length of the lease. (The renos included such things as building additional rooms, installing data drops, kitchen renos and an accessibility ramp etc. I'm wondering if the architectural drawing work would be considered a leasehold improvement as well). 

Are we able to expense any portion of the renos mainly I'm thinking of the additional $40,000 which wasn't covered by the loan. 

Thanks in advance!

Tamara

  • This is more of an accounting question which should be addressed with your accountant.

    Yes, your suggested entries for your loan would appear to be correct. The loan is totally separate from the renovations, yes, it was used to finance the renovations but otherwise it is separate. When a payment is made on the loan the capital portion of the payment writes down the Liability and does not affect the expenses. Only the interest is an expense in the period it is paid.

    All expenses in connection with making the building usable for your business would be considered as Leasehold Improvements. These would be recorded as a Capital Asset and then amortized over a period of years. The lease and all of its renewal periods might play a factor in the calculations as do the CRA CCA rules. This amortization would create the expense for you, ignoring the loan. 

    Even with these comments you would be best to discuss this issue with your accountant.