Dep on Assets

This query is : Resolved

varun gupta (Querist)
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16 June 2009 A company purchased some Machinery and it is received in Factory on 1st Mar 09. Bill from Vendor is dated 25th Feb 09. After all installations and work, the Machinery gets ready to be used on 15th Apr 09 whereas it is actually put to use on 1st May 09.
a) Now, When the Machinery be taken into books?
b) Will dep be charged for 2008-09 either in Cos Act or Income Tax Act?
c) What will be date from which dep should be calculated?
d) Any other statuatory requirement if applies?

CA CS CMA Srinivasan N

CA CS CMA Srinivasan N (Expert)
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16 June 2009 Hi,
As per AS10 , the fixed assets should be capitalized from the date they are ready to be put to use..all the costs after that date are not eligible for capitalization..
In your case the date of capitalization will be 15th Apr 009 and Depreciation to be charged from that date..
However for Income tax the Depreciationc an be claimed from the date it is put to use..
Hence no depreciation in 2008-09 in both Acts.
Refer Schedule XIV for Co's Act Depreciation..

Vipul J. Bhavsar

Vipul J. Bhavsar (Expert)
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16 June 2009 I agree with Mr. Srinivasan.
The depreciation should be charged from 15th April 2009 so resultantly it will appear in the books of FY 2009-10

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varun gupta

varun gupta (Querist)
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16 June 2009 Hi,

So it means that if a co purchases some Laptop on 15 June, while it is put to use actually on 20th July, even then dep in Cos Act will be charged w.e.f 15th June as it was ready to be used on 15th June itself and actual usage date won't matter!

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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21 July 2024 Yes, that's correct. According to Schedule II of the Companies Act, 2013, depreciation is charged from the date the asset is "ready to use," which is often interpreted as the date the asset is available for use, even if it is actually put to use at a later date.

In your example:
- If a company purchases laptops on 15th June, but they are actually put to use on 20th July, depreciation would be calculated from 15th June.
- The rationale is that the asset is ready for use from the date of purchase, and depreciation starts accruing from that point, regardless of when the asset is actually utilized.

This principle ensures that depreciation is charged consistently and reflects the economic benefits derived from the asset being available for use. It's important for companies to maintain accurate records of when assets are ready for use and when they are actually put into operation to comply with accounting standards and tax regulations.

Always consult with a professional accountant or tax advisor to ensure compliance with specific legal requirements and to apply depreciation correctly according to the Companies Act, 2013.