This presentation will cover accounting for tenant improvement allowances under current GAAP standards. It will define, discuss common mistakes, and give examples of correct journal entries for TIA.
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What is a Tenant Improvement Allowance?
● A lease incentive refers to any payments made by the landlord to(or on
behalf of) the tenant
○ These payments can include
■ Reimbursements for moving
■ Payments for tenants to break existing leases
■ Payments for Tenant Improvement Allowances(even if the
tenant never receives cash and simply submits invoices to the
lessor for a prescribed amount that the lessor has agreed to
fund)
○ Basically, a Tenant Improvement Allowance is a type of Lease
Incentive
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Common Mistake
● Let’s begin by talking about
what NOT to do. The FASB
has expressly stated that
incentives received should
NOT be netted against
Leasehold Improvements.
DR Cash 1,000
CR Leasehold Imprv 1,000
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Comprehensive Example With JEs
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● Assume a tenant enters into a 10 year operating lease
● Payments in years 1-5 are $1,000 annually, increasing to $2,000 in years 6-10
● To help induce the lease, the landlord agrees to provide funding of up to
$1,000 for leasehold improvements
● Total cost of leasehold improvements is $20,000
● Our system will calculate
your amortization schedule:
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Comprehensive Example With JEs
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DR Cash 1,000
CR Lease Incentive Liab. 1,000
To record receipt of the tenant improvement allowance
DR Leasehold Improvements 20,000
CR Cash 20,000
To record payment for total leasehold improvements by tenant
● Assume a tenant enters into a 10 year operating lease
● Payments in years 1-5 are $1,000 annually, increasing to $2,000 in years 6-10
● To help induce the lease, the landlord agrees to provide funding of up to $1,000 for leasehold
improvements
● Total cost of leasehold improvements is $20,000
● Using the data and amortization schedule provided, record the following entries:
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Comprehensive Example With JEs
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● Assume a tenant enters into a 10 year operating lease
● Payments in years 1-5 are $1,000 annually, increasing to $2,000 in years 6-10
● To help induce the lease, the landlord agrees to provide funding of up to $1,000 for leasehold
improvements
DR Rent Expense 1,500
CR Cash 1,000
CR Deferred Rent 500
To record rent payment Year 1
(Straight-line expense: 15,000 total pmts divided by 10 yr term)
DR Lease Incentive Liab. 100
CR Rent Expense 100
To amortize tenant improvement allowance
(Straight-line expense: 1,000 TIA divided by 10 yr term)
DR Rent Expense 1,400
DR Lease Incentive Liab. 100
CR Cash 1,000
CR Deferred Rent 500
To record rent payment in year 1 AND amortize
tenant improvement allowance
You can combine the entries to the left
as follows:
