Depreciation

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

23 May 2013 While constructing a new shop building,
1. electric wires, cables, fittings etc. will form part of building or part of furniture or fitting?
2. Ducting work for air coolers and air cooler itself will form part of building or part of plant and machinery?
please help me with details.

CA Pooja Agarwal

CA Pooja Agarwal (Expert)
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23 May 2013 elctric wires ,cables will form part of building.

air coolers will form part of office furniture

Querist : Anonymous

Querist : Anonymous (Querist)

23 May 2013 in the schedule of rate of depreciation, it is mentioned that:
Furniture and fittings including electrical fittings
further the note no. 5 specifies that:
Electrical fittings include electrical wiring, switches, sockets, other fittings and fans, etc.
so how can we classify it in building?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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21 July 2024 In the context of accounting and depreciation, when considering furniture and fittings, including electrical fittings, and how they are classified in relation to buildings, here’s the approach:

### Classification for Depreciation Purposes:

1. **Furniture and Fittings:**
- Furniture and fittings typically refer to movable items within a building that are used for furnishing and equipping purposes. Examples include desks, chairs, tables, cabinets, and other similar items.
- These items are classified separately from the building itself and are depreciated over their useful life separately from the building.

2. **Electrical Fittings:**
- Electrical fittings, as per your note, include electrical wiring, switches, sockets, and other electrical fixtures like fans within the building.
- These items are also considered part of the building’s electrical infrastructure and are integral to the functioning of the building.
- While they are part of the building’s infrastructure, they are still distinct from the building structure itself.

### Depreciation Treatment:

1. **Furniture and Fittings:**
- Depreciation for furniture and fittings is typically calculated separately from the building structure.
- The rate of depreciation depends on the type of asset and the depreciation policy adopted by the company. Common methods include Straight Line Method or Written Down Value Method.

2. **Electrical Fittings:**
- Similarly, electrical fittings are depreciated separately from the building. They are considered as part of the building’s infrastructure assets.
- The depreciation rate for electrical fittings also depends on the company’s policy and the applicable rates under the Income Tax Act or Accounting Standards.

### Classification in Financial Statements:

1. **Balance Sheet:**
- Furniture and fittings are usually categorized under "Fixed Assets" on the balance sheet.
- Electrical fittings may be included under the same category or separately categorized based on the company’s accounting practices.

2. **Depreciation Expense:**
- Depreciation expenses for furniture and fittings, including electrical fittings, are reported in the income statement and deducted as expenses to reflect the wear and tear over their useful life.

### Conclusion:

To summarize, furniture and fittings, including electrical fittings, are classified separately from the building itself for depreciation and accounting purposes. They are depreciated based on their respective useful lives and are treated as integral components of the building’s operational assets. Proper classification and depreciation ensure accurate financial reporting and compliance with accounting standards.