Case 9-4 Essay

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Case 09-4 NeedsSpace Background NeedsSpace has entered into a lease agreement with WeHaveIt to rent space for its corporate offices. The lease is classified as an operating lease. The lease entered between NeedsSpace and WeHaveIt has a 10 year lease term and there is no option to renew nor is the ability to negotiate for renewal provided in the lease agreement. Relevant Issue This case provides an opportunity to use accounting literature to account for the two obligations in the lease agreement. First the classification of the arrangement is an operating lease. A lease is an operating lease if it does not meet any of the four criteria in 840-10-25-1. This includes a lease that involves real estate and gives rise to manufacturer’s or dealer’s profit (or loss) to the lessor but that does not meet certain criteria in 840-10-25-1 (a). The first provision has to deal with the Lessee’s responsibility to perform general repairs and maintenance under (ASC 840-10). The second provision is telling NeedsSpace that they will have to retire their assets that they make on the premise under (ASC 410-20). Case Facts The lease entered into between NeedsSpace and WeHaveIt has a 10 year lease term and there is no option to renew nor is the ability to negotiate for renewal provided in the lease agreement. Also, the lease agreement contains certain conditions that may require NeedsSpace to undertake certain activities and incur certain costs at the end of the lease term. Some provisions include: 1. Lessor may require the lessee to perform general repairs and maintenance on the leased premises. 2. Lessor may require the lessee to remove all leasehold improvements such that the premise is reinstated to original condition. In addition, within the lease premise, NeedsSpace has placed into service various

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