Reporting Requirements for Annual Financial Reports of State Agencies and Universities
Capital Asset Categories
Leasehold improvements are improvements made by the lessee (for example, new buildings or improvements to existing structures, etc.). These improvements will revert to the lessor at the expiration of the lease. Moveable equipment or office furniture not attached to the leased property is not considered a leasehold improvement. Leasehold improvements do not have a residual value.
Leasehold improvements are capitalized by the lessee and are amortized over the shorter of either:
- The remaining lease term
- The useful life of the improvement
Improvements made in lieu of rent are expensed in the period incurred. If the lease contains an option to renew and the likelihood of renewal is uncertain, the leasehold improvement is written off over the life of the initial lease term or useful life of the improvement, whichever is shorter.
Once a leasehold improvement is fully amortized, the improvement must be removed from the financial records. For more information, see the Leasehold Improvements Definition in the SPA Process User’s Guide (FPP N.005).