I hope you are all well and had a good Christmas / new years break (apologies for late greetings as I have been unwell)
I have 2 question regarding a lease and was wondering if you can help
1. Client has taken a 10 year lease on a shop. They will be paying a weekly 'rent' to the owner over the net 10 years - how would you account this.
2. Client also paid £10k of 'goodwill' to the current occupier of the building (not the owner) in order to secure the shop as it's in a saught after and busy area. This transaction is between the client and current occupier of the building who is not the owner - how would you account for the £10k in the accounts?
Any help will be much appreciated
Thanks in advance
Nadia
-- Edited by NA_AA on Tuesday 19th of January 2016 12:06:44 AM
Re the goodwill - can I ask a few Qs - has your client bought the business of the current occupier of the shop? Or is it some kind of sweetener for him to move out/help him with any early lease get out? Initial thoughts are that this may not be allowed as 'goodwill' in the strict accounting sense, hense needing more info.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
No my client is not buying an existing going concern business.
As you say, this is more as a sweeter for the current occupier to leave the premises and hand over to the client. As I said, this is a very saught after busy area with a lot of footfall hence why the client taught it was worth paying the 10k....
Hi Nadia
Sorry I forgot to come back in this one, although I dont think I can help you with it as I think there is a need for more information.
Its difficult to know if this can be classed as goodwill, or indeed a lease premium - as normally a premium is paid to a landlord, but in this case its going to the present incumbent. Given the different possibilities here which could impact on the present incumbant and the landlord in terms of tax, Im sure they wouldve had tax advisors involved, so I think it is best if your client gets the same - so I would strongly suggest his Accountant is brought in now to overview this. They can then also advise best place for the entry in the software and can deal with any tidy up at the end of the year.
It would depend on several factors, not least - has the existing encumbent surrendered his lease on receipt of the £10k 'sweetener' and your client entered a new lease / has the lease re re-assigned (is this allowable) or has the property been sublet (and is this allowable) and if your client doesnt pay his lease at some point down the line, can the landlord go to the current tenant?
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
