One of your clients, Pebble Beach Company, leased a computer system from Integrated Technology Solutions for five years. After using the system for nine months, Pebble Beach realized that is was no longer adequate for its expanding business needs. As a result, Pebble Beach negotiated with Integrated Technology Solutions to terminate the original lease and enter into a new five-year lease under which Integrated would provide Pebble Beach with an expanded, upgraded system. Integrated would not agree to the arrangement unless Pebble Beach paid a $200,000 lease cancellation fee. Can Pebble Beach deduct the fee as a current expense, or must Pebble Beach capitalize the fee as a leasehold cost and amortize it over the five-year term of the lease?
Pebble beach shall deduct the fees as current expenditure. This is because due to payment of such fees no future benefit would arise. Assets are recognised only when there is future benefit for more than one accounting period resulting from the outflow of current resource. Since Pebble Beach is paying License cancellation fees which has no future benefits to company, hence it should recorded as current year expense.
One of your clients, Pebble Beach Company, leased a computer system from Integrated Technology Solutions for...
THE CASE Sameer Arkell and Marcy Haddow had worked for Crowdsite, an international computer repair service, for ten years. It therefore came as a surprise when they both received lay-off notices on a Friday afternoon early January 2015. Both were given severance packages that matched their seniority so they decided that this might be the catalyst to launch their own business repairing computers and related equipment for businesses in their community. Both were single and had no children, so no...