Question

Luby Corporation has maintained an office in a leased building for several years. The corporation has decided to make some significant improve-ments to enhance the property. How should Luby Corporation depreciate these improvements

Answer 1

When a lessee spends money improving leased assets, e.g. offices or warehouses, it must capitalize this expenses and amortize them during the lease term. E.g. if Luby Corporation spent $100,000 remodeling the offices, and the lease expires in 4 years, it must capitalize the expenses as a leasehold improvement and then amortize $25,000 per year.