Building Improvements & Depreciation

Assets are the items that a company owns and are used to generate profit from its operations. Building improvements are additions or alterations made to existing assets. Under certain rules, companies can capitalize and depreciate these improvements.

Facts

Depreciation allows a company to expense major asset acquisitions or improvements over a period of time. This also provides the company an opportunity to lower its income for several accounting periods.

Features

Companies will often post a journal entry to place the building improvement into an asset account. Accountants then determine the depreciation each month, following current accounting standards. The result is an expense posted each month that represents depreciation.

Considerations

Several different depreciation methods exist for building improvements. Straight line is a method to expense the same amount for a period of time, double declining balance advances more depreciation earlier in the useful life and units produced works for facilities that will lose value as they produces items.

References

• Business Dictionary: Leasehold Improvements
• Accounting Coach: Depreciation