Mary has forgotten to put rental expenses on the budget statement this month. Comment on the...

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Mary has forgotten to put rental expenses on the budget statement this month. Comment on the appropriateness of her action under each of the following scenarios:i) Mary owns the shop , Mary budgets a rental expense of 0.ii) Mary rents the shop and he budgets a rental expense of $4000. The rental contract, signed in late 2012 and it last for 3 years,Peter cannot terminate the contract nor sublet the shop to other people during this 3 years . The monthly rental is $4000 and the rent for this month has not been paid yet when the budget statement above was drawn up.iii) Mary owns the shop and she budgets a rental expense of $5000 as the shop is mortgaged to the bank and her monthly mortgage repayment is $5000 per month and it last for 6 years.

Robert · Accepted Answer

Discussion: Rent expenses in budgeting
All the three scenarios have evaluated from Income and Expenditure and Cash Budget point of views. 
Scenario-1 Mary owns the shop, Mary budgets a rental expense of 0
It is appropriate NOT to budget for the rental expenses as long the business is sole proprietorship and Mary is the proprietor.
When Mary owns the shop, she does neither have any rental expenditure nor any cash outflows with respect to rent. It would be appropriate to ignore the rental expenses when the operations are carried out from an owned property.  It might be considered as opportunity cost in the relevant costing, but not typically in budgets. 
If the establishment is a separate legal entity and proper lease agreement and other documentation and rent being paid is reasonable,

Mary has forgotten to put rental expenses on the budget statement this month. Comment on the appropriateness of her action under each of the following scenarios:i) Mary owns the shop , Mary budgets a...

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