A leasehold improvement occurs when a company that is leasing property spends money on improving it. For example, installing new heating ducts is a leasehold improvement, but putting a painting on the wall is not. The depreciation period is the amount of time that an accountant will depreciate an asset.
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The deprection period for a leasehold improvement is the lesser of the remaining lease life and the asset's life. For example, a company installs new heating ducts. The estimated useful life of the heating ducts is 15 years, and the remaining lease life is five years. Use five years, because it is less than 15 years.
Remaining Lease Life
The remaining lease life is how much time is left on the company's lease of the property. For example, if the company enters a 10-year lease, then purchases a leasehold improvement in its second year of the lease, the remaining lease life is eight years.
Useful Life of the Asset
The useful life of the asset is an estimate. The company bases this estimate on prior experience with similar items and from outside information such as product reviews.
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