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1009.2: Accounting for Leasehold Improvements

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: August 1999
Revised: January 2010
Refer Questions To: James Ribikawskis, 773-702-3690

Purpose: To establish a capitalization policy for financial accounting purposes for leasehold improvements to land and buildings.


This policy applies only to improvements made to leased land and buildings used in the operation of the University.

1. Financial Services is responsible for accounting for all leasehold improvements in accordance with the applicable financial accounting guidance.

2. This policy applies to expenditures made to improve the usefulness or the life of leased property classified as an operating lease, such as: a) long-term leases that provide that any improvements made to the leased property revert to the lessor at the end of the life of the lease or b) if the lessee constructs new buildings on leased land or reconstructs and improves existing buildings, the lessee has the right to use such facilities during the life of the lease, but they become the property of the lessor when the lease expires.

3. Capitalized leasehold improvement assets include the following:

1. Land Improvements – Land improvements to be capitalized as leasehold improvements include the cost of landscape, utility systems, surface parking lots, and outdoor public recreational fields having a cost in excess of $100,000.

2. Buildings – Cost to be capitalized includes all costs related to construction. Construction costs include but are not limited to the cost of professional services, materials, labor, and site preparation.

3. Building Improvements – Building improvements to be capitalized as leasehold improvements are significant alterations or structural changes that cost in excess of $100,000.

4. At the time the leasehold improvement is completed and has been put in service, all construction costs will be depreciated in accordance with applicable University Policy (See Financial Policy No. 1004.2).