We have the intention of buying a prefabricated structure to be installed in our tenanted warehouse as erecting a hard wall would be expensive. We may end up moving the prefabricated structure with us if we move to another premise. Fixture or leasehold improvements? Thank you.
Would a Prefabricated structure considered a leasehold improvement?
Answers
I would classify it as a fixture. My experience is that leasehold improvements can usually not be taken with you when you vacate the leased property.
I second Anon's recommendation.
Thank you. Would this change if we do not intend to remove it? There seems to be argument for and against including this in leasehold improvements as there are high electrical infrastructure costs associated with this prefabricated structure installation that it does not make sense for relocation before the tenancy period is up. Additionally, the useful life of this asset would be more than 5 yrs, much longer than most furniture and fixture estimated useful life. Based on the intention and the fact that the method a company choose to expand or add on to its operating capability due to costs I feel it should not have an impact on its classification. Please let me know your thought please.
This is not mine but I'm just posting a link to an article on "Should we capitalize improvements on a leasehold property?" http://www.ifrsbox.com/capitalize-ppe-ias16/
In which case, I'm agreeable with the author's point of view ...
I would say that it's a fixture, since it can be moved. There is no reason why the default useful life could not adjusted to longer than 5 years, if appropriate. If the lease ends and you move the structure then you would write off the remaining electrical infrastructure costs.
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