Deloitte Case Study

ACCT 6610

July, 9 2010

Codification 840-10-35

Amortization of Leasehold Improvements in Operating Leases

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840 Leases

10 Overall

35 Subsequent Measurement

General

> Amortization of Leasehold Improvements in Operating Leases

35-6     Leasehold improvements in operating leases that are placed in service significantly after and not contemplated at or near the beginning of the lease term shall be amortized over the shorter of the following terms:

* a.  The useful life of the assets

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b.  A term that includes required lease periods and renewals that are deemed to be reasonably assured (as used in the context of the definition of lease term) at the date the leasehold improvements are purchased.

From Wiley GAAP

PERSPECTIVE AND ISSUES

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Under US GAAP, management is granted the flexibility of choosing between or among certain alternative methods of accounting for the same economic transactions, although over time the range of choices has narrowed and will likely be further reduced. Examples of the availability of such choices are provided throughout this publication, in such diverse areas such as alternative cost-flow assumptions used to account for inventory and cost of sales, different methods of depreciating long-lived assets, and varying methods of identifying operating segments. The professional literature (in the areas of accounting principles, auditing standards, quality control standards, and professional ethics) is emphatic that, in choosing among the various alternatives, management is to select principles and apply them in a manner that results in financial statements that faithfully represent economic substance over form and that are fully transparent to the user.

Conclusion

According to our understanding Shear Honesty should have tracked improvements and began depreciating their leaseholder improvements over...