Amortisation of depreciation

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 October 2013 Dear Sir,

I have a query, suppose there is a manufacturing company, manufacturing things some of which are used for personal purpose ( 10% of goods produced) during the accounting year. I want to know at such case, dose depreciation on plant and machinery will be reduced by such percentage and added to the material produced for personal purpose ?

I am asking from Auditor's point of view.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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12 October 2013 What you mean by personal use? personal use of directors/ shareholders or captive use?

Querist : Anonymous

Querist : Anonymous (Querist)

12 October 2013 used by director

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Nitesh Parmar

Nitesh Parmar (Expert)
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12 October 2013 Ya It is right the depreciation of same would be disallowed.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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12 October 2013 I don't think its case as simple as you want it to be. You are confusing the matter:

1. The machinery was used for production of goods which is integral to the business. Therefore full depreciation should be allowed.

2. However, a portion of the goods were used by the director.

The company has two options.

1. Charge the director full as sales,

2. Include the same in his remuneration (assuming there is no limit breach happens under the Companies Act).

I have not covered indirect tax issues (I am not an expert on that part).

Querist : Anonymous

Querist : Anonymous (Querist)

14 October 2013 Ok, Mr. Nikhil Kaushik i have agreed with your advice i.e. it should be charged as sales. But i want to modify my question to the extant that suppose the product which company has produced are used for company purpose. i. e. capitalised. then what will be treatment of depreciation in such a case ?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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14 October 2013 If the output is a capital asset used for the company purposes, then the output should not be added to sales.

You need to determine its cost. The same should be reduced from the cost of production and capitalized as a capital asset.

The depreciation shall be based on the class of asset it belongs to. Make sure that your properly record the date of put to use.

Please check for indirect tax compliances. i am not an expert on that.

Querist : Anonymous

Querist : Anonymous (Querist)

14 October 2013 Right, I am talking about direct tax only i.e. Income Tax. Amount of depreciation incurred against such capitalized product is identifiable. Whether there is need to capitalized such part of depreciation which has been identified ?

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Nikhil Kaushik

Nikhil Kaushik (Expert)
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14 October 2013 Sorry couldn't understand what u are saying? If you are suggesting that the depreciation of the machinery used for producing this output be capitalized, then my answer is NO. Depreciation is not charged to cost of production. So question of capitalizing it doesn't arise.

Querist : Anonymous

Querist : Anonymous (Querist)

15 October 2013 It contradicts according to accounting standards 10. i.e. If assets are self constructed, then all cost incurred for the construction of asset should be charged to cost of the asset constructed including depreciation of assets which are particularly used for such work.

Pls let me know on this.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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15 October 2013 I am sorry. I correct myself. You should capitalize the portion of depreciation.

Querist : Anonymous

Querist : Anonymous (Querist)

15 October 2013 Ok. Thank you.

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