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Accounting treatment for rental deposit

30 September 2009 3,782 views 3 Comments

Hello fellow accountants,

I am Ravishankar Reddy, a Chartered Accountant from India. I have certain doubts as to the accounting treatment of rental deposit paid.

For example, ‘X’ pays rent of $ 10,000 per month for an office premises. He enter into a agreement with his landlord for a period of 3 years. He also pays a rental deposit of $1,00,000. Should there be any accounting effect for the ‘interest lost’ on this rental deposit as the tenant (X) is foregoing $ 1,00,000? Assume market interest rate of 10%

 Can anyone explain all the accounting entries pertaining to above for all three years under IFRS?

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3 Comments »

  • chirag_d said:

    Dear Ravishankar,

    I have also come across such situations, you can contact me on chiragdoshi@mzs.co.in, May be I can help you.

    Regards,
    Chirag Doshi

    # 30 September 2009 at 9:20 am
  • cmanishiyer said:

    Dear Ravishankar,
    IF Rental Deposit is a financial asset, it should be measured at amortised cost else at cost.

    Regards,
    CA Manish Iyer
    +919825286903
    My Tweets at http://twitter.com/cmanishiyer

    # 30 September 2009 at 10:06 am
  • Stiaan said:

    Dear Ravishankar

    The rental deposit should be recognised as an asset and measured at the present value (using your fair rate of 10% over the rental period), i.e

    Debit Deposit 60 (discounted value)
    Debit Rent paid in advance 40 (balancing figure)
    Credit Bank 100

    Then: Unwinding of effective interest over rental period

    Debit Deposit xx
    Credit Interest income xx

    as well as: Amortization of rent paid in advance (over the rental period in equal amounts)

    Debit Profit or loss xx
    Credit Rent paid in advance xx

    Regards
    Stiaan
    clam@sun.ac.za

    # 8 October 2009 at 8:57 am

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