I have a 5 year Operating Lease on Furniture ending. The buyout is $90,000 (10% of $900,000) and we have opted to purchase. Must I capitalize the $90,000 and depreciate over another 7 years? Seems like the furniture is OK now, but no way it lasts 12 full years. Is 7 years the only option? Because there are 80 offices of furniture over multiple leases, it will be difficult to dispose of the exact pieces of furniture as they are disposed of.
Furniture Buyout at Lease End
Answers
The $90,000 should be capitalized and depreciated over the estimated remaining useful live of the furniture, assuming that it exceeds one year. Do you have a written policy manual on fixed assets? This is what my company's manual said re depreciation: "Changes in circumstances such as technological advances, changes to our business model or changes in the capital strategy could result in the actual useful lives differing from initial estimates. Where it is determined that the useful life of a long-lived asset should be revised, the net book value in excess of the estimated residual value is to be depreciated over its revised remaining useful life."
Filed Under:
Accounting