question archive A charity is administrated from offices that it has leased under a short term lease
A charity is administrated from offices that it has leased under a short term lease
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A charity is administrated from offices that it has leased under a short term lease. During December 2018 it relocates its administration to a new building. The lease on the old office continues for the next three years and cannot be cancelled. The old offices cannot be sublet or otherwise assigned to another user. Required:
Discuss the above situation and determine if a provision should be provided for the year 2018.
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Since lease on old office continues for 3 years , cannot be cancelled, cannot be used for other purpose, the loss on lease rent is certain , and 3 years lease rent should be provided as provision. A provision should be recognised if the probability of future outflows to settle an obligation is certain. Here, the lease rent expense is certain for 3 years, that is why a provision is needed.
