Assets and Depreciation Chapter- 10
- Disposal consideration in respect of leased assets
The consideration received by a scheduled bank, financial institution, modaraba, or leasing company
approved by the CIR in respect of an asset leased by the company to another person shall be the
residual value received by the leasing company on maturity of the lease agreement provided that
the residual value plus the amount realized during the term of the lease towards the cost of the
asset is not less than the original cost of the asset,Example: A leasing Company has lease out its plant and machinery on the following terms and
conditions;
Rs.
Lease rentals for five years (Principal plus mark-up price) 6,000,000
Cost of plant and machinery to leasing Company 4,000,000
You are required to compute the disposal consideration of lease asset under the following situations:
(a) If the principal amount in total lease rental is Rs. 3,500,000 and its residual value is Rs.200,000.
(b) If the principal amount in total lease rental is Rs. 3,800,000 and its residual value is Rs. 100,000.
(c) If the principal amount in total lease rental is Rs. 4,000,000 and its residual value is Rs. 200,000
Solution:
In case A and B as the principal amount plus residual amount is less than the cost of asset to the
lessor therefore the disposal consideration shall be taken as Rs. 4,000,000 that is not less than the
cost of asset to the lessor. However in case of C no adjustment shall be made in the disposal
consideration as the same is more than the cost of asset to the lessor.- Disposal consideration in respect combined sale of two or more assets
Where two or more assets are disposed of by a person in a single transaction and the consideration
received for each asset is not specified, the total consideration received by the person shall be
apportioned among the assets disposed of in proportion to their respective FMV’s determined at
the time of the transaction.Example: In tax year 20 23 Mr. Khan disposed of his two business cars for a sum of Rs. 1,200,000.
WDV of car-1 is Rs. 300,000 and car-2 is Rs. 400,000. Fair Value on the date of this transaction was
as follows:
Car- 1 700,000, Car- 2 300,000
Required: Compute gain on sale of these two cars.Solution:
Rs. Rs.
Car- 1 Car- 2
Consideration received (apportioned on the basis of
fair values) i.e. 70% : 30% 840,000 360,000
Less: WDV 300,000 4 00,000
Gain / (loss) on disposal 540,000 (40,000)Important note: The tax department shall accept the value that will be higher from FMV and disposal
consideration received of respective asset. As the in the said example the consideration received is
higher the same has been taken into account however where the fair value will be higher than the
same shall be taken into account.- Determination of consideration received by board
Notwithstanding anything contained in this section, the Board may prescribe rules for determination of
consideration received for any asset.