Depreciation

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 January 2016 CASE STUDY
A ltd is a power generation and distribution company. A new distribution lines were laid out in 2011-2012 in an area cost of such distribution lines amounted to 100 Crore.

As per the govt. Regulations such company is allowed to recover 30% of the cost from the customers of that area including in electricity bills .
The company recovered the cost as follows:-

in 2013-2014 rs 5.00 Crore
in 2014-2015 rs 4.00 Crore.
In 2015-2016 rs. 5.00 crore

The company claims depreciation on original cost method under section 32(1)(i).
Rate of depreciation –15%

How can you compute depreciation on allowance under section 32(1)(i) for the A.Y. 2016-17

CA CMA CS Ram Pavan Kumar Melam

CA CMA CS Ram Pavan Kumar Melam (Expert)
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10 January 2016 The "actual cost" as defined u/s 43 means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority.

In the above case, though the actual amount received is Rs. 14 crores, the further amount of Rs. 16 crores is receivable. Hence, deduct Rs. 30 crores from the capital expenditure of Rs. 100 crores. The balance amount Rs. 70 crores is the actual cost.

The depreciation is to be calculated as per Rule 5(1A) at the percentage specified in Appendix IA of these rules on the actual cost thereof.

No additional depreciation is allowed if depreciation method opted is u/s 32(1)(i).

Querist : Anonymous

Querist : Anonymous (Querist)

10 January 2016 dear sir

can i interpret the words 'has been met' as the cost that is collected from the customers.
hence for the assessment year 2016-6017 the actual cost of the asset is equal to 100 crores less 14 crores i.e 86 crores and the depreciation shall be 86*15%=12.90 crores

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CA CMA CS Ram Pavan Kumar Melam

CA CMA CS Ram Pavan Kumar Melam (Expert)
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11 January 2016 If you are sure of receiving Rs. 16 as well, then pass as entry for its receivable and reduce it from the asset.

The law cannot provide a solution to every situation, alternatively, you may check the existing practice with the other power generation and distribution companies. If found the same is lawful, you may take a stand to follow the same.

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Querist : Anonymous

Querist : Anonymous (Querist)

11 January 2016 dear sir
thanks for suggestion