Under ITB and GAAP, which asset category should be identified for tenants who have vacated and terminated their lease during the year?

Under ITB and GAAP, which asset category should be identified for tenants who have vacated and terminated their lease during the year?

• A. Deferred Leasing Costs
• B. Tenant Improvements
• C. Accounts Receivable
• D. Prepaid Rent

Answer: (B)

Leasehold improvements, often referred to as tenant improvements, are capital assets tied to the leased space and are amortized over the shorter of the lease term or the asset’s useful life. Under GAAP (and ITB guidance), these costs are recorded as a leasehold improvement asset on the balance sheet. If a tenant vacates and terminates the lease during the year, the remaining value of those improvements still exists as an asset and should be identified as Tenant Improvements, to be evaluated for impairment or redeployed when the space is re-leased. Deferred Leasing Costs relate to obtaining new leases and are amortized over the related lease terms, not tied to a vacated tenant. Accounts Receivable would only represent amounts due from tenants while leases are active, and Prepaid Rent is a payment related to rent in advance rather than the asset category for the vacated tenant’s improvements.

Leasehold improvements, often referred to as tenant improvements, are capital assets tied to the leased space and are amortized over the shorter of the lease term or the asset’s useful life. Under GAAP (and ITB guidance), these costs are recorded as a leasehold improvement asset on the balance sheet. If a tenant vacates and terminates the lease during the year, the remaining value of those improvements still exists as an asset and should be identified as Tenant Improvements, to be evaluated for impairment or redeployed when the space is re-leased. Deferred Leasing Costs relate to obtaining new leases and are amortized over the related lease terms, not tied to a vacated tenant. Accounts Receivable would only represent amounts due from tenants while leases are active, and Prepaid Rent is a payment related to rent in advance rather than the asset category for the vacated tenant’s improvements.