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Actual Cost u/s 43(1)

CA. Deepak Narula (B.Com., ACA, DISA) (541 Points)

07 December 2010

As per Explanation 10 to section 43(1), any subsidy received from anyone will not be included in the actual cost to assessee. What will be the treatment if the subsidy received for the asset the block of which is already nil? Will the depreciation claimed by assessee in the previous years be disallowed?

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7 Replies

CA. MUKESH KUMAR (CHARTERED ACCOUNTANT) (183 Points)
Replied 07 December 2010

Plz explain your case through an example. And reason of nil wdv alongwith nature of assets whether it is

a assets for the purpose of Research & Developement or otherwise.

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CA PARAS BAFNA (Practising CA ) (33428 Points)
Replied 07 December 2010

You have to take Subidy as an Income of the year of its receipt.

CA. Deepak Narula (B.Com., ACA, DISA) (541 Points)
Replied 09 December 2010

e.g. subsidy received against P&M the block of which is negligible, if not nil. If the subsidy was received before the asset was put to use, it would have been reduced from the cost of asset. But now the subsidy is received after the asset is used for many years and the block is near to nil. What will be the treatment?

@ Mr. Paras - Pls give the support to ur ans that we have to take it as an income in the year of receipt of subsidy.

Paresh Rathod (CA) (222 Points)
Replied 09 December 2010

lUnder one method, the grant is shown as a deduction from the gross value of the asset concerned in arriving at its book value. The grant is thus recognised in the profit and loss statement over the useful life of a depreciable asset by way of a reduced depreciation charge. Where the grant equals the whole, or virtually the whole, of the cost of the asset, the asset is shown in the balance sheet at a nominal value.

Paresh Rathod (CA) (222 Points)
Replied 09 December 2010

Under the other method, grants related to depreciable assets are treated as deferred income which is recognised in the profit and loss statement on a systematic and rational basis over the useful life of the asset. Such allocation to income is usually made over the periods and in the proportions in which depreciation on related assets is charged. Grants related to non-depreciable assets are credited to capital reserve under this method, as there is usually no charge to income in respect of such assets. However, if a grant related to a non-depreciable asset requires the fulfillment of certain obligations, the grant is credited to income over the same period over which the cost of meeting such obligations is charged to income. The deferred income is suitably disclosed in the balance sheet pending its apportionment to profit and loss account. For example, in the case of a company, it is shown after 'Reserves and Surplus' but before 'Secured Loans' with a suitable descripttion, e.g., 'Deferred government grants'.