Car purchase

Page no : 2

dipak (accountant) (32 Points)
Replied 18 May 2012

dear sir,

please guid me how to calculate the Depriciation amount as on 31/03/2012 with formula as early as possible

balance sheet as per 1st april 2011 rs 165000

car purchase on 18/11/2011 Rs 450000

old car sold on 5/11/2011 Rs. 265000

dipak mody

dipak51157 @ yahoo.com

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Pulkesh Mehta (Chartered Accountant) (243 Points)
Replied 18 May 2012

I am not in assent with Mr. Giridhar & Mr. Irfan-

--- First of all CAR is not a capital good,even in case of delivery car of Pizza hut,because it is not related with preparation of Pizza-therefore in case of car you cannot claim VAT Input.

--- Second thing- First time Insurance Expenses are eligible for capitalisation in cost of car because it enhances the useable capacity of car.Insurance

Premium paid in IInd year is expenses of IInd yr, ,therefore revenue in nature.

--- Third thing as car is not related with production,you cannot claim Service Tax credit included in Insurance Premium.

Z ( ) (2965 Points)
Replied 18 May 2012

Citing relevant text of AS-10

Para 9.1 states

The cost of an item of fixed asset comprises its purchase price, including

import duties and other non-refundable taxes or levies

and

any directly attributable cost of bringing the asset to its working condition for its intended use;

any trade discounts and rebates are deducted in arriving at the purchase

price. Examples of directly attributable costs are:

(i) site preparation;

(ii) initial delivery and handling costs;

(iii) installation cost, such as special foundations for plant; and

(iv) professional fees, for example fees of architects and engineers

20. The cost of a fixed asset should comprise its purchase price and

any attributable cost of bringing the asset to its working condition for its

intended use

Having regards to "any directly attributable cost of bringing the asset to its working condition for its intended use;"

First time insurance charges should be capitalized in the cost of car.

Subsequent renewals of insurance should be charged to revenue account in the manner mentioned by Mr. Giridhar

Reason being one can not put the car in use before getting it insured

AS-10 requires that all cost directly attributable for bringing asset to its inteneded use should be capitalized.

Having regards to

non-refundable taxes or levies

Your capital goods would be those cap. goods which are used for production/manufacturing purpose . Car being a vehicle is not used for this purpose (even in case of pizza hut as they use it for delivery purpose)

car [cost and non refundable taxes (VAT+ ST) + insurance + road tax etc)

subsequent insurance Revenue nature

An output service provider shall be allowed to take credit of the service tax paid on such input services, which fall in the same category of taxable service as that of output service

So if the company is in business of like providing insurance then the service tax paid can be availed as credit otherwise its added in cost and subsequently allowed by way of dep. in Income Tax

Still hold the same opinion , if wrong then please give detailed explanation.

irfancpa (Accountant) (59 Points)
Replied 19 May 2012

***************The Best Answer in this Case of Mr. Pulkesh Mehta****************************

The Entry Will remain same, as I have Written.

Shiva (Sr.. Accountant) (23 Points)
Replied 19 May 2012

All expenses incurred on any plant and machinery must be capitlized so insurance also capitlized bcz without insurance car you cannot purchased.

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naresh mody (Accountant) (52 Points)
Replied 20 May 2012

VAT, Insurance and Service Tax on the same will all be the cost of Asset and can not be carried forwrd or can not set off against any out put VAT or Service. Any initial cost incurred directly or indirectly incurred in relation to purchase or procurement of such assest also to be direclt debited to such Asset. RTO Tax, Service charges by Agents, or any subsequent fittings and accesories purchased immediately on purchase casn also be capitalised initially. In the subsequent period it could be of revenue nature.