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Depreciation - Asset demolished/ discarded

Rider ride (CA Final) (180 Points)

07 May 2010

hi .....

I faced a problem during the audit--

A Co. had a branch office taken on rent . Furniture - fixtures worth 15 lacs were installed 3 years ago and co was claiming dep. on that part. Now they shifted their office and furniture was unfixed and shifted but during that process furniture worth 5 lacs was destroyed ( eg. sunmica , glasses ). Now what should be the treatment -

1) whether it should be reduced from WDV as asset demolished/destroyed and at what value.

2) Can we do tax planning by showing scrap sale ( say rs. 10000) of that furniture. With this only scrap value of Rs. 10000 will be reduced from WDV.

Thanks

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Amir (Learner) (4016 Points)
Replied 08 May 2010

Dear Friend,

Under Companies Act i:e Books of Accounts - Asset that has been destroyed should be removed from Fixed Assets & appropriate loss should be recognised in the P/L A/c

Assets that are not in use (retierd)& held for disposal should also be removed from the Fixed assets & should be shown under Inventory as "assets held for disposal" & should be valued as lower of "Book value or realizable value"

Under Income Tax - Continue claimimg depreciation. No adjustment needs to be done. Only actual sellinf price/scrap value shall be reduced from the Block of assets.(Assumng there are other assets in the same block)

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