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Depriciation query-urgent

08 December 2011

Dear all,

its regarding 2 qureies:

1) is it compulsion to follow the comapnies act in respect of rates of depriciation mentioned in the act?

2) Secondly, If im not wrong the rates provided in the companies act are minimum rates, and its clearly mentioned that if per unt cost of an asset is less than 5000/- than 100% depriciation should be charged. is this correct?

3) Example: a company purchased 20 units @ 3500 each of say machinery,total cost rs 70000/-/.does comapny have compusion to charge dep @ 100% or they can at thier own discretion charge any rate?

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6 Replies

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 08 December 2011

rates in schedule xiv are minimum rates so you can charge depreciation at a rate which is higher than rates prescribed in schedule xiv and not at a lesser rate in contrast to schedule xiv .You can charge 100% depreciation on assets costing less than 5000 to claim maximum tax shield and it is permitted in schedule xiv

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CA PRABHAKAR JHA (ACA) (313 Points)
Replied 08 December 2011

Shreyans,

Before charging depreciation @ 100% you also consider the a proviso of Schedule XIV of companise act which is as follows:

8. Notwithst&ing anything mentioned in this Schedule depreciation on assets, whose actual cost does not exceed five thous& rupees, shall be provided depreciation at the rate of hundred per cent:

Provided that where the aggregate actual cost of individual items of plant & machinery costing Rs. 5,000 or less constitutes more than 10 percent of the total actual cost of plant & machinery, rates of depreciation applicable to such items shall be the rates as specified in Item II of the Schedule.

The concept of materiality has been applied at the time of writing of this proviso, It clearly sates if the P&M having value of 5000 or less but constitute more than 10% of total value of P&M then depreciation shall be charged normally.

For your perusal Sch XIV is being attached

Attached File : 78270 881879 depreciation 20rates 20companies 20act.pdf downloaded: 262 times

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shreyans jain (ABC) (192 Points)
Replied 08 December 2011

@ prabhakar

Leave Plant & Machinery, iam talking in general, wheather a fixed asset whose actual cost per unit is less than 5000/- should be or can be depriciated @ 100%?

Which means if a company charges less than100% depriciation on assets less than 5000/-, isnt it a wrong valuation ifwe bring into mind the schedule XIV

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Madan Kumar (Accounts manager) (29 Points)
Replied 09 January 2012

please provide me the depreciation Rates chart with example of the one year.

please provide to my mail id :madankumar133 @ gmail.com

Thnaking you,

Regards,

Madan Kumar.

Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 10 January 2012

Originally posted by : Shreyans jain
	@ prabhakar Leave Plant & Machinery, iam talking in general, wheather a fixed asset whose actual cost per unit is less than 5000/- should be or can be depriciated @ 100%? Which means if a company charges less than100% depriciation on assets less than 5000/-, isnt it a wrong valuation ifwe bring into mind the schedule XIV

Answer is - SHOULD BE

(because the word used in Sch XIV is "shall be")

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Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 10 January 2012

Originally posted by : Shreyans jain
	@ prabhakar Leave Plant & Machinery, iam talking in general, wheather a fixed asset whose actual cost per unit is less than 5000/- should be or can be depriciated @ 100%? Which means if a company charges less than100% depriciation on assets less than 5000/-, isnt it a wrong valuation ifwe bring into mind the schedule XIV