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In case of operating lease,if lessee spent significant amount on interior of leased asset (say building) for improving business…what will be the treatment of this amount?? should it be capitalised in SOFP of lesse??
Normally, yes. It’s classed as “tenant’s improvements” and is depreciated over the shorter of the useful life of the improvements compared with the remaining period of the lease. Is it likely that the operating lease is renewable? For how many years? Is it likely that the tenant will take advantage of the full potential lease term? these are questions we need to ask to be able to reach a fully informed view on the capitalisabilty of the improvements costs
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