How to keep accounting records for renting premises?

Accounting for the lease of premises is regulated by the National Accounting Regulations (Standards) 14 “Lease” and provides for the consideration of specific features for such transactions. Correct accounting for lease allows you to accurately reflect the assets of the enterprise, determine the optimal structure of their posting and track the timeliness of payment of the relevant payments. Below we will examine this issue in more detail.

Lease of premises in accounting: concepts and features

Lease of premises is essentially a contract under which the lessor transfers to the lessee the right to use a certain asset (premises). The main goal and at the same time the complexity of accounting for lease of premises is the correct reflection of all transactions. For accounting, it is important to distinguish between two types of lease:

• operational (does not involve the transfer of all risks to the lessee). It is reflected in the off-balance sheet account 01 “Leased non-current assets”;
• financial (the lessee acquires ownership rights after the lease term expires). The asset is subject to depreciation over the period of its use.

As can be understood from the definition, such payments as rent, costs for improving the leased premises (repair), as well as utility payments will be subject to accounting. There will also be a bona fide tax accounting of all transactions. We will talk about it in more detail below.

Tax accounting for the lease of premises: what should be taken into account?

Tax accounting for the above transactions involves taking into account tax differences provided for by the Tax Code, taking into account the following features:

• if the tenant enterprise has an annual income of up to 40 million UAH and has notified the tax office of the non-application of differences, then all rental transactions are reflected exclusively according to accounting rules;
• payers with income of over 40 million UAH are required to adjust their financial result before taxation for tax differences (for example, when the lessor is a non-resident, an increase in tax differences by 30% of the cost of rental services is predicted).

Now let's move on to a more detailed consideration of the main tax payments. In particular, if the premises are rented not from a VAT payer or an individual, then when calculating rental payments, the tenant does not receive a VAT tax credit. At the same time, the rent is recognized as the income of a single tax payer (an individual entrepreneur on a simplified system) and is expected to be charged from the value of personal income tax (18%) and military levy (depending on the tax group). The single income tax is not charged on the rent payment.

How to keep accounting records for the lease of premises?

Let's consider how to keep accounting records for the lease of premises, taking into account its division into operating and financial. So, for the operating one, it is important to provide for the following:

• the income for the lessor is determined taking into account the method of obtaining economic benefits;
• inclusion of incurred rental costs as part of capital investments;
• the book value of the object will consist of two parts - the residual value before increasing the costs incurred, the cost of initial direct costs.

For financial accounting, slightly different features will apply:

• the asset is recognized at the lower of the two estimates - the fair value of the property or the present value of the minimum lease payments;
• the distribution of financial expenses between reporting periods is carried out in such a way as to ensure a constant rate of return on the balance of the liability;
• the leased object is subject to impairment testing.

If we talk in more detail about practical aspects, then below we will present the main accounting entries for accounting for the lease of premises in Ukraine.

Main accounting entries for reflecting in the accounting for the lease of premises

1. Accrued rent - Dt 92 and Kt 685;
2. Tax settlements - Dt 685 and Kt 642;
3. Rent transferred to the card account (payment) - Dt 685 and Kt 311;
4. Allocation of administrative expenses to the financial result - Dt 791 and Kt 92, etc.

Why should you contact the accountants of the law firm “Prikhodko & Partners”?

Keeping accounting records of the lease of premises is not just a routine filling out of documents, but a complex matter that requires in-depth knowledge of tax and accounting legislation, which is constantly changing. Turning to the experienced accountants of the law firm “Prikhodko & Partners” can be your strategic decision that will ensure proper optimization of financial processes. With us, you will receive invaluable experience, time savings, security of operations and an individual approach to resolving your request.

Among the most popular services of our accountant, the following are worth highlighting:

• consultations on accounting issues;
• formation of primary documents;
• keeping accounting and tax reports;
• support of tax audits and others.

By contacting the accountants of our law firm, you will receive impeccable accounting of the rent and certainty in the correctness of all charges. To find out the cost of accountant services, fill out the form below.