Capitalisation of assets below the cost Rs 5000

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hitesh sharma (Querist)

29 April 2009 What if an entity purcahsed Aseets in bulk like 10 mobiles each individually costs Rs 4000 or below 5000 , then total cost of 10mobiles will be capiatalised or asset will individually capitalised

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RAJU CHANDAK

RAJU CHANDAK (Expert)

29 April 2009 It needs to be capitalised seperetely and u can claim 100% depreciation on it as per Sechdule XIV of the Companies Act

Manmohan ACA, CS

Manmohan ACA, CS (Expert)

30 April 2009 cost of mobiles will be capiatalised

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)

30 April 2009 The query can be replied by having two examples:
1. Compter Machine is assembled from different components each costing for an amount less than Rs. 5000/-. In this case, the asset acquired is a computer as the component can not function on its own but it is the synchronised effort of all the components that gives the desired output. Hence, all components put together form a logical asset and as such, the aggregate cost of all components is to be analysed for the purpose of ascertaining the rate of depreciation.
2. Ten mobiles purchased for Rs. 40000/-: In this case each mobile set is logically a seperate asset and its functionality is not dependant on the other set and can be depreciated @ 100% as the cost of one set is not more than Rs. 5000. On the other hand the purchase of all the mobile sets is evidenced with 10 individual bills then one has no confusion about the rate of depreciation. And law has never precluded that the position will change if one bill is received for all the sets together.

Hope, the examples will clarify the confusion.

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