Leasehold Property improvements - accounting treatment
A partnership was incorporated several years ago with trading activities transferred to the Ltd and the properties remaining in the LLP. A market rent has been paid to the LLP by the Ltd for the properties due to the fact the make up and relative "shares" of the LLP differing to the Ltd.
The Ltd has funded and developed one property to a significant extent leading to over a doubling in market value of the property and a resultant increase in the market rent. My question is how to treat this fairly in the accounts of the LLP and Ltd?
Currently any improvements paid by Ltd are simply included in the Ltd accounts as leashold property improvements and depreciated over time. Is this still a fair treatment for such significant improvements to a leasehold property?
One option being mooted is to revalue the property in the LLP accounts as the difference between new market value and original market value stripping out the cost of improvements (being accounted for in the Ltd) - would this be sensible?
I guess the LLP cannot expect any market rent increases on the new development having not paid for those improvements
Am I worrying unecessarily and this happens all the time!
Of course as the LLP partners and Ltd shareholder are almost the same (albeit relative share in each business is different) as long as they are happy in the treatment and the value is apportioned betoween the two business by a mechanism they are happy is that the main criterion?
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