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Hello
In part of the answer, the following was said:
“As regards the disrepair of the building, the estimated costs should be spread over the six years of the agreement. IAS 37 Provisions, Contingent Liabilities and Contingent Assets would indicate that Minco has a present obligation arising from the lease agreement because the landlord can recharge the costs of any repair to Minco. The obligating event is the wear and tear to the building which will arise gradually over the tenancy period and its repair can be enforced through the legal agreement.”
Does this mean that the costs are expensed (as in dr expense and cr bank/ receivables) and a disclosure is made regarding the contingent liability?
Hi,
Yes, the obligation arises at the end of each period as the building gets progressively more damaged, however the entry at each year end will be to DR Expenses and CR Provision.
Once the lease is finished the company will pay the wear and tear so DR Provision (created over the six years) CR Bank.
Hope this helps.
Thanks
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