Assets and Depreciation Chapter- 10
Less: WDV 40,000
Profit on disposal (equal to accumulated depreciation) 60,000
ASSETS OF LEASING COMPANIES
A deduction allowed on account of normal depreciation to a leasing company or an investment bank or a
modaraba or a scheduled bank or a development finance institution in respect of assets owned and
leased to another person shall be deducted by the aforesaid respective persons. [U/s 22(13)(c)]
The total of deductions u/s 22 to 23B allowable to a leasing company or an investment bank or a
modaraba or a scheduled bank or a development finance institution in respect of assets owned and
leased to another person shall be deducted only against the leased rental income derived in respect of
such assets.
Example: From following information compute the depreciation admissible to the leasing company for two
years;
- Lease rentals per year 1,200, 000
- Cost of machinery 5,000,000
- Lease period 5 years
- Initial allowance 1,250,000
- Annual depreciation year 1 (15% of WDV) 562,500
- Annul depreciation year 2 (15% of WDV) 478,125
- Annul depreciation year 3 (15% of WDV) 270, 938
- Annul depreciation year 4 (15% of WDV) 406,406
- Annul depreciation year 5 (15% of WDV) 345,445
Solution: The computation of depreciation for five years is as under:
Rs.
Year 1 Depreciation for the year 1,812,500
Less annual lease rentals 1,200,000
Balance depreciation C/F 612,500
Year 2 Add: depreciation for the year 478,125
Total depreciation 1,090,625
Less annual lease rentals 1,200,000
Balance depreciation C/F -
Important note: From the second year to onwards the lessor is entitled to claim full amount of depreciation
as the lease rentals exceeds from the total depreciation from third year to onwards.
DISPOSAL AND ACQUISITION OF ASSETS
Disposal and acquisition of assets [U/s 75]
(A) Disposal of asset arises under the following cases:
S. No.
(1)
Disposal of assets U/S 75
(2)
- A person who holds an asset shall be treated as having made a disposal of the asset at
the time the person parts with the ownership of the asset or when an asset is sold,
exchanged, transferred or distributed or cancelled, redeemed, relinquished, destroyed,
lost, expired or surrendered. - The transmission of an asset by succession or under a will shall be treated as a
disposal of the asset by the deceased at the time asset is transmitted.