Understanding Islamic Finance - Doha Academy of Tertiary Studies

304 Understanding Islamic FinanceBox 11.4:(Continued)Repairs of leased assets• a provision for repairs is established if repairs are material and differ in amount fromyear to year;• repairs undertaken by the lessee with the consent of the lessor are to be recognizedas expense.2. Ijarah Muntahia-bi-Tamleek through giftAssets acquired• are recognized at historical cost;• are presented as Ijarah Muntahia-bi-Tamleek, with assets measured at book value;• depreciate as per normal depreciation policy;• however, no residual value shall be subtracted since it is to be transferred to thelessee through gift.Ijarah revenue/expense• is allocated proportionately in financial periods over the lease term;• is presented as Ijarah revenue.Initial direct costs• material costs are allocated over the lease term or otherwise charged directly as anexpense.Repairs of leased assets• a provision for repairs is established if repairs are material and differ in amount fromyear to year;• repairs undertaken by the lessee with the consent of the lessor are to be recognizedas expense.At the end of the financial period/lease term• legal title passes, subject to settlement of Ijarah instalments.Permanent impairment/sale of lease asset• If the Ijarah instalments exceed the fair rental amount and impairment is not due to actionor omission of the lessee, the difference between the two amounts shall be recognizedas liability due and charged to the income statement.3. Ijarah Muntahia-bi-Tamleek for token consideration or specified amountAssets acquired• are recognized at historical cost;• are presented as Ijarah Muntahia-bi-Tamleek assets and measured at book value;• residual value is subtracted in determining the depreciable cost. Depreciation ischarged as per normal depreciation policy.Ijarah revenue/expense• is allocated proportionately in financial periods over the lease term;