Q.  The owner of our company owns the building we occupy and charges us rent which we recognize as an overhead expense.  DCAA now tells us we must charge ownership, not rental costs, which can include cost of money on the building.  We also sublease part of the property and DCAA tells us we must deduct the rent received from our cost of ownership.  Are they right?

A.  Yes and no.  Yes, normally you are required to charge the government for the cost of ownership (e.g. depreciation, allowable taxes, repairs and maintenance, leasehold improvements, etc) not the rent your company pays the owner as long as the owner exercises control over the property.  You can also recoup cost of money on the capitalized value of the building and also the land.  As for the accounting treatment of the sublease, you need to deduct the portion of the rent you receive that represents cost, not the entire amount of the rent.

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