A rental deposit is normally expected to become paid when a firm rents a premise in the landlord. These rental deposits can be refundable in the ending from the lease period or might be applied to offset against the past couple of months rental payments. Rental deposits are often not material for the financial statements. On the other hand, for firms within the retail or property sector, the rental deposits received or paid may possibly be considerable.
The rental deposit is often a financial instrument (ex. a financial asset for the lessee and also a financial liability for the lessor) and must be accounted for with FRS 39. The rental deposit must be recognized at fair market value on initial recognition, plus the distinction among the fair value as well as the amount of money paid is carried around the balance sheet as a deferred lease income/expense and recognized as lease income/expense on a straight line basis more than the lease term. Interest expense/income is recognized through the lease term because the carrying value on the rental deposit is accredited for the nominal value.
