Accounting entry for finance lease Tax treatment for lease

Machinery DR Lease rentals expense Dr 100,000

Lease liability Cr Bank/cash Cr 100,000

Lease rentals paid

during a tax year are
allowed as tax
Lease rentals/installment deduction
100,000 every year Tax does not accept accounting treatment for leasing.
interest exp
liability repayment

Accounting treatment : finance lease

Treats leased asset as
asset therefore
records depreciation
reatment for leasing.
Mr. Qateel
Total income - Tax year 2024

Income from business:

Accounting profit 2,809,297
Add: finance charges on leased asset 35,703
Fine for breach of contract - No treatment
Add: Accounting dep 1,900,000
Add:Manufacturing licence 450,000 Intangible asset as per Tax
Less: amortization of licence - 30,000
Vehicle tax - deduction allowed
Security deposit to KE 200,000 not a deduction allowed
advance tax 300,000 not a deduction allowed
add: donations 2,064,600 not a deduction allowed
penality for late return filung 25,000 not a deduction allowed
Entertainment exp - No treatment
Less: dividend income - 580,000 Not business income
less: capital gain - 1,200,000 Not business income
less: lease rentals - 270,000 Full lease rentals paid are allowed as tax expense
less: tax depreciation - 1,679,000
Income from business 4,025,600
Income from other sources 800,000 Gross earning. Dividend is FTR income
Capital gain 1,200,000
Total income 6,025,600
less: FTR and deparate block of income 5,225,600
less: zakat - 100,000
Taxable income under NTR 5,125,600

Tax liability:
on NTR income - 5,125,000 1,158,960 Tax credit working:
Less: tax credit - 347,688 A tax liability C: lower of
Tax liability - NTR 811,272 B taxable income 1,537,680
Tax on dividend 120,000
Total tax liability 931,272
Less: tax already paid
advaance tax collected through electricity b- 300,000
advance income tax paid - 480,000
tax on dividend - 120,000
Tax payable with return 31,272

Tax depreciation working

other than iv and v 1,560,000
leased asset 15,000 Asset to be treated as an acquisition in tax year 24 and Residual va
warehouse 104,000 Depreciation rate is 10% on building.
Total depreciation 1,679,000
 Tax treatment for lease:

as tax expense

2million

on in tax year 24 and Residual value is treated as cost. Depreciation rate is 15%