Previous year depreciation
This query is : Resolved
30 August 2012
Dear Sir,
One of our client a partnership firm has not charged depreciation in the previous year and during this year the depreciation of previous year as well as of current year has been calculated.
The depreciation for current year has been charged to P&L A/c and depreciation for previous year has been adjusted to partners capital A/c.
Please advise whether the depreciation of previous year will be allowed under Income Tax Act. If yes then how should we present the same in current year financial statement.
One of our client a partnership firm has not charged depreciation in the previous year and during this year the depreciation of previous year as well as of current year has been calculated.
The depreciation for current year has been charged to P&L A/c and depreciation for previous year has been adjusted to partners capital A/c.
Please advise whether the depreciation of previous year will be allowed under Income Tax Act. If yes then how should we present the same in current year financial statement.
07 September 2012
Please reply
10 August 2024
Under the Income Tax Act, depreciation that was not claimed in the previous year can be adjusted in the current year. Here's how to handle the situation in terms of income tax and financial statements:
### **1. Depreciation Adjustment Under the Income Tax Act**
**Income Tax Allowance for Depreciation:**
- **Unclaimed Depreciation:** According to the Income Tax Act, if depreciation was not claimed in the previous financial year, it can be claimed in the current year. This is in accordance with the provisions allowing the carry forward of unclaimed depreciation under Section 32 of the Income Tax Act.
- **Adjustment:** The unclaimed depreciation from the previous year should be added to the depreciation for the current year and claimed as a deduction while computing the taxable income of the current year.
### **2. Presentation in Financial Statements**
**Financial Statements (Profit and Loss Account):**
- **Current Year Depreciation:** The depreciation for the current year should be charged to the Profit and Loss Account as per normal accounting practice.
- **Previous Year Depreciation:** The depreciation for the previous year should be adjusted in the financial statements of the current year. It should be reflected as a correction or adjustment.
**Accounting Treatment:**
1. **Adjustment Entry:**
- **Debit:** Depreciation Expense Account (for both current and previous years).
- **Credit:** Accumulated Depreciation Account (to reflect the total depreciation for both years).
2. **Correction of Partners' Capital Account:**
- If the depreciation of the previous year was originally adjusted in the partners' capital accounts, you may need to reverse this adjustment and instead adjust it as an expense in the current year’s Profit and Loss Account.
**Example Adjustment Entry:**
- **Current Year Depreciation Calculation:** Suppose the depreciation for the current year is ₹1,00,000 and the unclaimed depreciation from the previous year is ₹50,000.
- **Journal Entries:**
- **Debit:** Depreciation Expense Account ₹1,50,000 (Total depreciation for both years).
- **Credit:** Accumulated Depreciation Account ₹1,50,000.
**In Financial Statements:**
- **Profit and Loss Account:** Show the total depreciation for the current year including the adjustment for the previous year.
- **Balance Sheet:** The accumulated depreciation should reflect the total depreciation accumulated over the years, including adjustments.
### **3. Income Tax Return Filing**
**Claiming Depreciation:**
- **Form 3CD:** While filing the tax audit report, ensure that the depreciation for both the current and previous years is claimed appropriately.
- **Schedule of Depreciation:** Include the details of unclaimed depreciation from the previous year along with the current year's depreciation in the tax audit report.
### **Summary:**
1. **Income Tax Act:** Unclaimed depreciation from the previous year can be claimed in the current year.
2. **Financial Statements:** Adjust the previous year's depreciation in the current year's financial statements by reflecting it as part of the total depreciation expense.
3. **Accounting Treatment:** Reverse any prior adjustments made to partners' capital accounts and correctly account for depreciation in the Profit and Loss Account.
### **Action Steps:**
1. **Review the Depreciation Calculation:** Ensure the calculation of both current and previous year’s depreciation is accurate.
2. **Make Correct Entries:** Adjust the financial statements accordingly to reflect the correct depreciation.
3. **File Tax Return:** Include the depreciation adjustment in the income tax return to ensure compliance and correct tax computation.
For detailed guidance and to ensure compliance with all accounting and tax regulations, consulting with a Chartered Accountant (CA) is recommended.
### **1. Depreciation Adjustment Under the Income Tax Act**
**Income Tax Allowance for Depreciation:**
- **Unclaimed Depreciation:** According to the Income Tax Act, if depreciation was not claimed in the previous financial year, it can be claimed in the current year. This is in accordance with the provisions allowing the carry forward of unclaimed depreciation under Section 32 of the Income Tax Act.
- **Adjustment:** The unclaimed depreciation from the previous year should be added to the depreciation for the current year and claimed as a deduction while computing the taxable income of the current year.
### **2. Presentation in Financial Statements**
**Financial Statements (Profit and Loss Account):**
- **Current Year Depreciation:** The depreciation for the current year should be charged to the Profit and Loss Account as per normal accounting practice.
- **Previous Year Depreciation:** The depreciation for the previous year should be adjusted in the financial statements of the current year. It should be reflected as a correction or adjustment.
**Accounting Treatment:**
1. **Adjustment Entry:**
- **Debit:** Depreciation Expense Account (for both current and previous years).
- **Credit:** Accumulated Depreciation Account (to reflect the total depreciation for both years).
2. **Correction of Partners' Capital Account:**
- If the depreciation of the previous year was originally adjusted in the partners' capital accounts, you may need to reverse this adjustment and instead adjust it as an expense in the current year’s Profit and Loss Account.
**Example Adjustment Entry:**
- **Current Year Depreciation Calculation:** Suppose the depreciation for the current year is ₹1,00,000 and the unclaimed depreciation from the previous year is ₹50,000.
- **Journal Entries:**
- **Debit:** Depreciation Expense Account ₹1,50,000 (Total depreciation for both years).
- **Credit:** Accumulated Depreciation Account ₹1,50,000.
**In Financial Statements:**
- **Profit and Loss Account:** Show the total depreciation for the current year including the adjustment for the previous year.
- **Balance Sheet:** The accumulated depreciation should reflect the total depreciation accumulated over the years, including adjustments.
### **3. Income Tax Return Filing**
**Claiming Depreciation:**
- **Form 3CD:** While filing the tax audit report, ensure that the depreciation for both the current and previous years is claimed appropriately.
- **Schedule of Depreciation:** Include the details of unclaimed depreciation from the previous year along with the current year's depreciation in the tax audit report.
### **Summary:**
1. **Income Tax Act:** Unclaimed depreciation from the previous year can be claimed in the current year.
2. **Financial Statements:** Adjust the previous year's depreciation in the current year's financial statements by reflecting it as part of the total depreciation expense.
3. **Accounting Treatment:** Reverse any prior adjustments made to partners' capital accounts and correctly account for depreciation in the Profit and Loss Account.
### **Action Steps:**
1. **Review the Depreciation Calculation:** Ensure the calculation of both current and previous year’s depreciation is accurate.
2. **Make Correct Entries:** Adjust the financial statements accordingly to reflect the correct depreciation.
3. **File Tax Return:** Include the depreciation adjustment in the income tax return to ensure compliance and correct tax computation.
For detailed guidance and to ensure compliance with all accounting and tax regulations, consulting with a Chartered Accountant (CA) is recommended.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Tax implications of gift to maternal uncle
- Closure of a PVT LTD company
- Input Tax Credit Puf panels
- ROC filings for the first year of incorporation
- 26QB correction - no data available error for fully consumed/processed with default
- Real estate business by a partnership firm where both of the partners are SC/ST
- TDS on Purchase of Immovable Property in case of Co Owner
- When I Login E-invoice portal with waybill user id and pw, it is showing 3011 error data
- How to open attachment in 23ac xbrl
- Partnership deed reconstitution in how much stamp paper in uttar pradesh
- Income tax planning
- Stock statement procedure bank od loan monthly report
- Please help with SAC Codes (6 digits) for below mentioned services provided by Chartered Accountant
- Printing Press under Composition Scheme
- 140-A Tax Wrongly Paid PAN No
- CSR funding for private limited companies
- Professional tax deduction monthly
- Cross charges verses Isd methof
- Refund Application in RFD 01 for Export without payment of tax
- Ewaybill bill to ship from
CAclubindia
