What is a Leasehold?

A leasehold is a designation that is assigned to an asset being leased. Under a lease

arrangement, the lessee gains the use of an asset that is owned by the lessor for a certain
period of time, in exchange for a series of payments.

Accounting for a Leasehold

The leasehold designation appears in the accounting records of the lessee, and is most
commonly seen as a fixed asset account called "Leasehold Improvements". These
improvements are capital expenditures applied to a leased asset, such as building space.
The lessee amortizes leasehold improvements over the shorter of their useful life or the
life of the lease.

Related AccountingTools Course

Accounting for Leases

Presentation of a Leasehold

For presentation purposes, a leasehold asset is usually consolidated with the other fixed
asset accounts of a business, so that only a single fixed assets line item is presented on
its balance sheet . The ending balance in the leasehold asset account is usually considered
too immaterial to be worth presenting separately.

What is IAS 17 in accounting standards?

The objective of IAS 17 (1997) is to prescribe, for lessees and lessors, the
appropriate accounting policies and disclosures to apply in relation to finance and
operating leases.

What is IFRS 16 in simple terms?

IFRS 16 is a lease accounting regulation from the International Accounting Standard
Board that requires publicly listed companies to include on their balance sheets all
leasing contracts with a contract term longer than one year.

What is the difference between IFRS 16 and IAS 17?

The main difference relates to the treatment of residual value guarantees provided
by a lessee to a lessor. This is because IFRS 16 requires that the company
recognise only amounts expected to be payable under residual value guarantees,
rather than the maximum amount guaranteed as required by IAS 17.
What are the disadvantages of IAS 17?
IAS 17 has been criticised for not reflecting economic reality. Well-known examples
include fleets of aircraft or rolling stock that do not meet the criteria for recognition as
assets and liabilities by the lessee, and for which a lack of detailed disclosure is
required in financial statements.

What are the weaknesses of IAS 17?

Off-Balance Sheet Financing Concerns: Under IAS 17, operating leases were kept
off the balance sheet. This led to a lack of transparency, as entities didn't recognize
lease liabilities and assets, providing an incomplete picture of their financial position.