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AS6 CHANGE IN METHOD

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PUNEET OBEROI

CHARTERED ACCOUNTANT

100 Points Posted on 03 October 2010

Dear Colleagues, A company has been charging depreciation in the books of account exactly as per the provisions of Income Tax Act, 1961 for the past more than 10 years. In this regard, I would like to ask following questions:-

1. Whether charging depreciation as per the provisions of Income Tax Act, 1961 allowed and poses on complications as far as AS-6, Income Tax, Companies Act are concerned?

2. If company wishes to change the method of deprecation from that in Income Tax Act, 1961 to Companies Act, then is it regarded as change in method or just change in the rates?

3 If such change is done as mentioned above in point 2, then would it be required to recalculate the depreciaiton with retrospective effect and accordingly give effect to the depreciation schedule?

Kindly advise me on this.

Thanks in Anticipation,

CA.Puneet Oberoi

Replies (1)

Jacob John

TRIVANDRUM

21 Points Posted on 05 October 2010

Dear Sir,

I do not yet have practical experience in these issues, but as far as I know, I can suggest you the following points:

AS-6 does'nt prescribe any rates for charging depn, but tells that the rate of depn for companies should not be lower than the minimum rates prescribed under the Sch. XIV of the Companies Act, 1956. So, if the company in question charged depn( in accordance with I.T Act) at a rate lower than the Sch.XIV rates it is a deviation from AS-6.

The changeover of depn from the block of asset method prescribed by the I.T Act to the method under the Companies Act, is not just a change in rate of depn, but a significant change in the method of charging depn,. So depn has to be calculated retrospectively and needs to be reflected in the depreciation schedule and the P&L.

Regards,

Jacob John