How to Calculate Amortization Expense for Office Space Improvements
How much amortization expense should be recorded the first year related to the improvements?
Phoenix agency leases office space and incurs $81,000 to improve the leased office space, with benefits expected for 8 years and 6 years remaining on the lease. Compute the amount of amortization expense that should be recorded the first year related to the improvements.
Amortization Expense Calculation
Phoenix should record an amortization expense of $13,500 in the first year related to the improvements made to the leased office space.
To calculate the amount of amortization expense for the first year related to the improvements, we need to divide the cost of the improvements by the remaining lease term. Since Phoenix has 6 years remaining on the lease, the annual amortization expense will be based on this remaining term.
The formula to calculate the amortization expense is:
Amortization expense = Cost of improvements / Remaining lease term
Given that the cost of improvements is $81,000 and the remaining lease term is 6 years, the annual amortization expense is:
Amortization expense = $81,000 / 6 years
Amortization expense = $13,500 per year
Therefore, Phoenix should record an amortization expense of $13,500 in the first year for the improvements made to the leased office space.
Find out more about annual amortization here.