ZX has invested into the new office at the Central location. However, the space is taken on a long term lease. ZX does not wish to show the investments in the new office explaining that they have not owned the office, but taken it on lease only. Also, the office needs to be vacated after the lease period is over. ZX is required to give back the space to the owner in the original condition after the lease period gets over. ZX's management considers that these costs will be incurred in future, hence we do not have to worry on accounting of these costs at present.
One of the Board members is of the view that showing the investment in the new office will add a burden to the balance sheet (in form of a liability) and adversely impact the Return On Capital Employed if the new office is shown in the books.
You are required to prepare a report suggesting:
- The requirements of accounting under the lease and of the costs of vacating the premises.
- Discussing the ethical implications of not doing the right accounting for leases