03 March 2013
My doubt is that lets say I buy a machinery on 10th october....So as per rule I have to calculate depreciation @ 5%. However while calculating this what do I take the number of days as? Full 12/12 or actual number of days?
Again if I am selling as asset from within the block of assets during the year, then do I have to calculate the depreciation for asset sold for part of the year for which it is used or do I directly deduct its sales proceeds from block of assets and charge depreciation on balance? Also what if along with sale I have also purchased an asset during the year and that too after October..Do I then calculate depreciation on remaining block of assets at half the rate for the new assets and full rate for remaining???
How are the above entries recorded in the books of accounts? Is it recorded as per income tax method or is it recorded as per normal method wherein we calculate depreciation on basis of exact number of days keeping aside the 180 day and block of assets rule?
03 March 2013
In case the assessee is not a company follow the following - Case -1 1. Add: The Asset No 2 Purchased for Rs 300 in the opening WDV of Asset No 1 1000. 2. Deduct : the asset no 1 sold for Rs 1200. 3. Provide Depreciation @ 5% on (1300-1200)=100 representing the Asset 2 Case -2 1. Add: The Asset No 2 Purchased for Rs 300 in the opening WDV of 1000 of Asset No 1. 2. Deduct : the asset no 1 sold for Rs 200. 3. Balance in the Block= 1300-200=1100 4. Provide Depreciation @ 5% on 1100 representing the Asset 2 Case -3 1. Add: The Asset No 2 Purchased for Rs 300 in the opening WDV of 1000 of Asset No 1 and Asset No 0. 2. Deduct : the asset no 1 sold for Rs 200. 3. Balance in the Block= 1300-200=1100 4. Provide Depreciation @ 5% on 300 representing the Asset 2 and 10% on Balance 800 representing the Asset 0. .
The application of deprecation depends on your company policy. There are various methods or policies can be applied e.g. 1. You may charge full year depreciation on the asset in the year of purchase irrespective the part of the year , you purchase the assets. In this case, you will not deduct deprecation at the time of selling such asset. 2. You are also allowed not to deduct the deprecation on the asset in the year of purchase irrespective of the part of the year, and will deduct the depreciation for full year at the time of selling of such asset again irrespective of the part of the year. 3. You can also charge the depreciation in year of purchase and sales both. In this case you will consider the part of the year e.g. if you purchase asset in October you will charge the depreciation from October to onward and you sale the same asset in somewhere in april then you will charge the depreciation up to april. The recording of the depreciation should be as per normal accounting not as per the taxation, if the tax rates are different then you are using it may create deferred tax at the year end. Analyze your depreciation rates with the tax rates if these are aligned then there is no need to worry. Regards,
CAclubindia
