dep on sale
This query is : Resolved
11 September 2010
If a part of Invertor is sold during the year so how we calculate loss/profit & depreciation for that year.according to companies act.
For Example Cost of Invertors is 100000 dep upto 31.3.2009 is 40000 & on 30.6.2009 a invertor is sold for Rs.5000,the actual cost of that invertor is not known as a single head is used for all invertors how dep & loss/profit on sale of invertor is calculated according to companies act,will it affect deffered tax also
For Example Cost of Invertors is 100000 dep upto 31.3.2009 is 40000 & on 30.6.2009 a invertor is sold for Rs.5000,the actual cost of that invertor is not known as a single head is used for all invertors how dep & loss/profit on sale of invertor is calculated according to companies act,will it affect deffered tax also
11 September 2010
You have total cost of invertors Rs.100000
You also know no of inverter i.e balance no of inverter after sale of 1 inverter.
Now divide total cost of inverters divided by total no. of inverter and same depr is divided, then calcualte wdv as on 1/4/2009, afterward calculate dep on such wdv @ 13.91% because it is covered under Electrical Industrial/ Electrical civil.
Then deduct such wdv from sale value.
In income tax depreciation chart, nothing to do , simply Rs. 5000 will be reduced from block of asset.
You also know no of inverter i.e balance no of inverter after sale of 1 inverter.
Now divide total cost of inverters divided by total no. of inverter and same depr is divided, then calcualte wdv as on 1/4/2009, afterward calculate dep on such wdv @ 13.91% because it is covered under Electrical Industrial/ Electrical civil.
Then deduct such wdv from sale value.
In income tax depreciation chart, nothing to do , simply Rs. 5000 will be reduced from block of asset.
13 September 2010
no of invertors are not known as many times some items are capitalised in invertors,so please reply if no of invertors are also not known
21 July 2024
In the scenario you described, where part of an inverter is sold during the year and the actual cost of the individual inverter is not known due to multiple items being capitalized under one head, here’s how you can calculate depreciation and determine the profit or loss on sale according to the Companies Act, and whether it affects deferred tax:
### Calculation of Depreciation:
1. **Depreciation Up to 31.3.2009:**
- You mentioned that depreciation up to 31.3.2009 was Rs. 40,000.
- Assuming straight-line method of depreciation, if the inverter was acquired before 31.3.2009, the annual depreciation would be calculated based on its estimated useful life and original cost.
2. **Depreciation for the Year Ending 30.6.2009:**
- Depreciation for the year up to 30.6.2009 can be calculated as follows:
- Determine the annual depreciation rate based on the useful life (as per Schedule II of the Companies Act or as per company policy).
- Calculate depreciation for the period from 1.4.2009 to 30.6.2009.
- Example: If the annual depreciation rate is 10%, depreciation for 3 months (April to June) would be (10% * Cost of Invertor) / 12 * 3.
### Calculation of Profit/Loss on Sale:
1. **Determine the Sale Proceeds:**
- The part of the inverter sold for Rs. 5,000.
2. **Determine the Cost of the Inverter Sold:**
- Since the individual cost of the inverter is not known separately, allocate the cost based on a reasonable basis. This could be based on the proportion of depreciation charged up to the date of sale.
3. **Calculate Profit or Loss:**
- Profit/Loss = Sale Proceeds - Cost of Inverter Sold.
- If the sale proceeds are higher than the allocated cost, it results in a profit; if lower, it results in a loss.
### Deferred Tax Consideration:
- **Impact on Deferred Tax:**
- Deferred tax is calculated on timing differences between accounting profit and taxable profit. The sale of the inverter part would create a timing difference if there is a profit or loss recognized for accounting purposes.
- If there is a loss on the sale of the inverter part, it may reduce taxable income, leading to a deferred tax asset (if it creates a future tax benefit). Conversely, a profit may increase taxable income, leading to a deferred tax liability (if it creates a future tax obligation).
### Documentation and Accounting Entries:
- Document the sale with proper documentation of the sale transaction.
- Make accounting entries to record the depreciation expense up to the date of sale and the sale of the inverter part.
- Ensure that these entries are in compliance with the Companies Act and relevant accounting standards.
### Conclusion:
In summary, when part of an inverter is sold and the individual cost of the inverter is not known, you should allocate the cost based on a reasonable basis. Calculate depreciation up to the date of sale and determine the profit or loss on sale accordingly. Document the transaction properly and consider the impact on deferred tax if applicable. For precise calculations and compliance with accounting standards, it is recommended to consult with a qualified accountant or tax advisor.
### Calculation of Depreciation:
1. **Depreciation Up to 31.3.2009:**
- You mentioned that depreciation up to 31.3.2009 was Rs. 40,000.
- Assuming straight-line method of depreciation, if the inverter was acquired before 31.3.2009, the annual depreciation would be calculated based on its estimated useful life and original cost.
2. **Depreciation for the Year Ending 30.6.2009:**
- Depreciation for the year up to 30.6.2009 can be calculated as follows:
- Determine the annual depreciation rate based on the useful life (as per Schedule II of the Companies Act or as per company policy).
- Calculate depreciation for the period from 1.4.2009 to 30.6.2009.
- Example: If the annual depreciation rate is 10%, depreciation for 3 months (April to June) would be (10% * Cost of Invertor) / 12 * 3.
### Calculation of Profit/Loss on Sale:
1. **Determine the Sale Proceeds:**
- The part of the inverter sold for Rs. 5,000.
2. **Determine the Cost of the Inverter Sold:**
- Since the individual cost of the inverter is not known separately, allocate the cost based on a reasonable basis. This could be based on the proportion of depreciation charged up to the date of sale.
3. **Calculate Profit or Loss:**
- Profit/Loss = Sale Proceeds - Cost of Inverter Sold.
- If the sale proceeds are higher than the allocated cost, it results in a profit; if lower, it results in a loss.
### Deferred Tax Consideration:
- **Impact on Deferred Tax:**
- Deferred tax is calculated on timing differences between accounting profit and taxable profit. The sale of the inverter part would create a timing difference if there is a profit or loss recognized for accounting purposes.
- If there is a loss on the sale of the inverter part, it may reduce taxable income, leading to a deferred tax asset (if it creates a future tax benefit). Conversely, a profit may increase taxable income, leading to a deferred tax liability (if it creates a future tax obligation).
### Documentation and Accounting Entries:
- Document the sale with proper documentation of the sale transaction.
- Make accounting entries to record the depreciation expense up to the date of sale and the sale of the inverter part.
- Ensure that these entries are in compliance with the Companies Act and relevant accounting standards.
### Conclusion:
In summary, when part of an inverter is sold and the individual cost of the inverter is not known, you should allocate the cost based on a reasonable basis. Calculate depreciation up to the date of sale and determine the profit or loss on sale accordingly. Document the transaction properly and consider the impact on deferred tax if applicable. For precise calculations and compliance with accounting standards, it is recommended to consult with a qualified accountant or tax advisor.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Is this income indian or foreign income?
- GST on export of services and Input Credit
- RCM applicability on Rent Paid by Registered Person to Unregistered Landlord for Residental Building
- ITC temporary reversal and reclaim
- Applicable TDS rate for sale of property in Nov 2024
- Inventory of finished goods
- Can we claim ITC of Feb-2024 in the month of November-2024 which was not claimed by oversight
- REGARDING 25 AS DATE OF PAYMENT AND DATE OF BOOKING
- GST ON EXPORT COMMISSION
- Should I report my US salary for January, February, March in Schedule FA?
- Sale of property furniture sale
- Confusion around Form 26QB fields
- Adjustment entry in the case of Individual and HUF on 31st March
- Stock difference tax applicable on composite rate or normal rate
- LAST YEAR 2022-23 ITC IN NEXT YEAR 2023-24 REPORITNG IN GSTR-9
- MIS MATCH OF INVOICE NUMBER
- IGST Credit-Show cause notice issued-confusion
- Issue of gst e invoice
- How to adjusted advances given or receipt
- Foreign vendor without PAN unable to to register due to non receipt of OTP on foreign number ?
Trending Online Classes
CAclubindia
