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Depreciation Calculations in Day

Mohanraj J (1178 Points)

10 October 2020

Dear Friends,

Is there any clause as per Companies Act/IT Act for calculating the depreciation in Days for SLM?

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11 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 10 October 2020

It’s calculated annually as per the statute of companies act 2013

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Mohanraj J (1178 Points)
Replied 10 October 2020

Thanks Yasaswi. Is it possible to get the notifications for the same? can u please share me the website link if possible. Thanks in advance.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 10 October 2020

https://cleartax.in/s/depreciation-companies-act-2013

Everyone has a doubt about what will happen when a machine is purchased in the middle of the year? It is quiet common and I also have the same. The tax allowable depreciation is claimed as early as possible ie from first year. If I purchased an asset, in the middle of the year, there are two initial treatments and one subsequent treatment for that here: https://www.taxadda.com/depreciation-section-32-income-tax/

Again, after that, depreciation method for accounting purposes has a depreciation method of following SLM, WDV, SOD and uop. Then, depreciation for tax purposes use WDV method and SLM method for power generating units only.

What ever date you will put the asset into use, only once in a year you get a tax allowance.

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Mohanraj J (1178 Points)
Replied 10 October 2020

Thank u so much for ur kind help

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 10 October 2020

If you want to calculate day wise, cost of asset/number of days of useful life (5years*365). Apart from that, the tax depreciation is the same for IndAS and AS as tax does not cover accounting standards excluding dt. Also there can be some exemptions like allowances will be given by tax authorities for first year and WDV depreciation is used in next years. I’m not sure if there are allowances still there for Capex.

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Mohanraj J (1178 Points)
Replied 11 October 2020

Once again thanks for your kind assistance. Our Management is asking me to calculate Depreciation in SLM (equal cost for starting to end month), even date of placed in use mid of the month or 28th day of the month. I told them this is not correct to calculate equal Depn cost for using just 2 days for 1st month. So, our Management is asking to submit relevant notifications or clauses in this regard

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 11 October 2020

Your correct. Once a machinery is opened from their packing, start operating it even for trials purpose, it is defined as ‘machine is put to use’. This has nothing to do with clauses or sections and it is an INDAS/AS principle. If your not using the machine for couple of days in a month, even then, it should be depreciated because it gets rusted as per scientific research evidence.

Tell them this is illegal for not complying with depreciation standard because the resale carrying value will be more if they want to sell it in the secondary markets. The companies act 2013, defines depreciation as systematic allocation of value decrease over the useful life of its asset in years. Companies act 2013, does not mention that depreciation calculation can be AVOIDED at any cost. This is your evidence.

You, have to calculate depreciation for every day ie., both 365 days and leap year wi5out excluding a single day even if the machine is idle.

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Mohanraj J (1178 Points)
Replied 11 October 2020

Very great explanation, thanks a lot.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 11 October 2020

I know it’s not answering your query, but in the end who cares if a company depreciates annually at a rate or sums up total per day depreciation? If they do annual depreciation, they don’t get one day tax benefit right? I think while filing, all of these small amounts to a company will fall under materiality threshold while auditing. So every leap year, the carrying value increases by some amount when compared to per day depreciation. So don’t get worried and process off the data and if anything goes wrong, your not responsible. Even I’m closing my account because I can’t preach what I don’t know, I don’t know because the rationale is not prescribed. Bye all CA Clubindia members!! I’ll come back if I feel like.

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