Treatment for legal expenses

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
If a company takes out a 2 year lease on an office, paying rent every month thereafter, can the legal charges incurred in the arrangement of the lease be capitalised, or should they be treated as a one off expense in the month that the lease was signed? The lease itself has no capital value and so the legal charge would be the only item relating to the lease that would be depreciated.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Treatment for legal expenses

    Hi.

    Under normal circumstancies, legal fees would only be disallowed in the P&L (i.e. capitalised) if the company concerned was buying a property. In your case the legal fees would be written off direct to the P&L under legal fees as the company does not own the building - it is simply renting it. Capitalisation only occurs if and when an entity owns the asset concerned.

    I hope that helps.

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Treatment for legal expenses

    The IR allows legal expenses on a new lease. If it is a renewal of a short lease it is disallowed.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Treatment for legal expenses

    The IR allows legal expenses on a new lease. If it is a renewal of a short lease it is disallowed.

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