Machinery received free of cost

This query is : Resolved

CA Shyam Agarwal (Querist)
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26 August 2015 My company purchased a machinery of Rs. 5700,000/- and received a another machine free of Rs. 52320/- we paid only 5600,000 rs. in full settlement

Now my questions are
1. how will I treat Rs. 100,000 less payment.
2. What will be accounting treatment of Machinery received free of cost.
3 Can we take ITC (VAT) which is mentioned in bill of Machinery which was received free of cost.
4. Can we take Dep. as per income tax act on machinery which was received free of cost.

Vivek Hebbar

Vivek Hebbar (Expert)
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28 August 2015 Dear Shyam

1. The discount of Rs.1,00,000 would go to reduce the cost of asset that would be recorded in the books.
2. The machine received free of cost will have to be capitalized at a nominal value of Re.1.
3. Logically, since you have not paid the VAT on the machine received free, you will not be eligible for claiming input credit.
4. As per Income Tax Act, you cannot claim depreciation on the machine received free of cost.

Further with respect to the main machinery, you can claim depreciation on the reduced value under Income Tax Act.