What is the accounting treatment for leasehold property

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 February 2016 1) What is the accounting treatment for Leasehold Property ?
2) Whether Leasehold Property is Shown as Fixed Assets in Balance Sheet ?
3) What will be the effect on balance sheet if the lease hold Property acquired for Longer duration is surrendered after one year ?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

03 August 2025 Hey! Here’s a detailed explanation on accounting treatment for leasehold property:

1) What is the accounting treatment for Leasehold Property?
Leasehold Property refers to property leased for a fixed period (e.g., 10, 20, or 99 years).

The lessee has right to use the property for the lease term but does not own it.

Accounting Treatment:

The leasehold property is capitalized as an asset at the cost of acquisition including:

Lease premium paid,

Initial direct costs,

Any improvement costs.

This asset is classified under Fixed Assets (usually as Leasehold Land or Leasehold Property).

The leasehold asset is amortized (written off) over the lease term or useful life, whichever is shorter.

Amortization is shown as an expense in the Profit & Loss account.

2) Whether Leasehold Property is shown as Fixed Assets in Balance Sheet?
Yes, leasehold property is shown under Fixed Assets in the Balance Sheet.

It is recorded as a non-current asset but amortized over the lease period.

The asset appears at cost less accumulated amortization.

3) Effect on Balance Sheet if Leasehold Property acquired for longer duration is surrendered after one year?
When leasehold property is surrendered or given up before the lease period ends:

Any unamortized cost (cost less amortization till date) should be written off as a loss in the Profit & Loss account.

The asset is removed from the books.

Effect on Balance Sheet:

Leasehold property (asset) value decreases (write-off).

Corresponding reduction in net worth due to the loss.

If any consideration is received on surrender, it is recorded as income.

Summary Table:
Event Accounting Treatment
Leasehold property acquisition Capitalize at cost, classify under Fixed Assets
Amortization Expense charged over lease term
Surrender before lease expiry Write off unamortized cost as loss
Consideration received on surrender Recognize as income

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now