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Difference b/w

Priyanka (Article Trainee) (93 Points)

29 January 2010

Is there any difference between unabsorbed depreciation and depreciation arrears?

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Amir (Learner) (4016 Points)
Replied 29 January 2010

Dear Priyanka,

It depends upon the context in which u r saying these terms

"Unabsorbed depreciation" is the term which has been used under Income Tax Act.(It means that portion of current year loss which is equal to or less than Depreciation....In other words Losses other than Cash loss)

Eg:- Net loss(after depreciation) is Rs. 10 Lakhs, Depreciation is Rs. 2 Lakhs, then

Rs. 8 Lakhs is called as "Cash loss" or "Business Loss" & Rs. 2 Lakhs is called as"Unabsorbed depreciation"

"Arrears of Depreciation" is a term which has been used in Companies Act which says that Comapny should provide "Arrears Of Depreciation before declaring Dividend or ariving at the Distributable profits"

It means the Depreciation of past years which was not provided/charged in the Profit/Loss A/c

Eg:- For FY 05-06 Co's Depreciation was Rs. 1 Lakhs but the same was not charged to revenue, & in FY 06-07 if Co wants to declare Dividend then it has to provide for the Dep of 05-06( Rs. 1 Lakhs) as well as 06-07.

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