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Dilapidations Assessments

Accounting treatment of dilapidations assessments

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We are coming to the end of the lease for a few of our warehouses, in the next 2 years, and we have had the dilapidations reassessed. There are 2 figures provided on the report - one being the contractual claim (how the landlord's surveyor would see their client's claim), the other being the estimated settlement which is subject to both the landlord and tenant intentions and the landlord's ability to demonstrate loss. As you would expect the contractual claim is considerably higher. Currently, it is unlikely that we will exit these sites so it may just roll over. However, in terms of what we should provide (company policy is 50% of the final year's rent) would our auditors deem it essential that we need to provide the contractual claim amount?

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By David Ex
04th Jul 2022 11:28

fcbmq wrote:

… would our auditors deem it essential that we need to provide the contractual claim amount?

Err, maybe ask your auditors?

Have you read the relevant accounting standard? That would probably be worthwhile as that’s what determines the appropriate accounting treatment.

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By paul.benny
04th Jul 2022 11:45

If you're going to extend the lease, you have an uncertain amount payable at the end of the new term - or payable later should you extend the lease further. It sounds to me more like a contingent liability - as David says, you might want to look at the accounting standard (FRS102, probably, which is freely available) and consider that in the light of the facts of the situation.

I'm not convinced that the policy of 50% of final year's rent is in any way supportable for statutory accounts.

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Replying to paul.benny:
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By David Ex
04th Jul 2022 11:58

paul.benny wrote:

I'm not convinced that the policy of 50% of final year's rent is in any way supportable for statutory accounts.

Good point. If the auditors have accepted that they’re unlikely to be concerned whatever the OP decides to do.

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By Paul Crowley
04th Jul 2022 12:05

Let the auditors decide whether they accept the company policy as being reasonable
They are the company's accounts
Auditors merely express an opinion. They will ignore any items that globally end up as not material

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Replying to Paul Crowley:
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By Bobbo
04th Jul 2022 14:49

Paul Crowley wrote:

Auditors merely express an opinion. They will ignore any items that globally end up as not material

Assume by "ignore" you mean 'communicate all misstatements identified, other than those that are clearly trivial, with the appropriate level of management.

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By Bobbo
04th Jul 2022 14:33

If the dilapidations in question are for, say, putting the warehouse back to its original state before you made various alterations to it for your use, then surely what you did is make a provision for the discounted cost of those remedial works when the alterations were initially made. Right?

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