Horse

1 May 2013 Live Stock A/c Dr. 250000 (Asset)

                                To Bank A/c 250000

No depreciation allowed on Live stock (horse)

31.03.2014 No entry

23.04.2014  P & L A/c Dr. 245000

                     Bank A/c Dr.      5000    

                                To Live Stock 250000

In Income Tax, Deduction allowed only for Rs.245000 u/s36(1)(vi) for FY 2014-15.

Regards

bt in this problem what are the possibilites for valuation of horse...AS-2 says u should value ur stock at cost or NRV whichevr is lower bt horse is not stock as per AS-2..it is live stock on which AS-2 not apply now...bcoz the horse has been died now the  question arose the value of horse on 31-3-14????? what it will be and on which basis?

I agree with Mr.Deepesh Ruhela's suggested entries provided, "Live Stock A/c." is grouped under Non-current assets as the intention of purchase of horse was for transportation (conducting business activities). It was not held for resale and hence no applicability of AS-2. Though the horse in the present scenario satisfies the criteria of being classified as a depreciable asset, AS-6 specifically provides that it does not apply to livestock. Hence whatever is the unrealised amount will be charged to Profit and Loss account.

I would also like to mention that since the query does not specify whether a non-corporate entity bought the horse or a corporate entity bought the horse, I restrict my answer to Income tax permissible deduction.

Dear Members

I dont know what AS says and I havent studied them in depth.

But i have following points to make:

If you say no depreciation is to be charged on horse though its a fixed asset as some AS does not apply to livestock, then isnt it unfair that we charge the whole 245000 to the PL account of the year in which the horse died.

if say i had 20 horses and all died in one year due to some disease or natural calamity, then will we book Rs. 49 lakhs (Rs. 245000 X 20) in the year in which horses died and substantially burden the financial statements of that FY (in which horses died).

We all know that horse has a particular life span say 40 years, and suppose when we bought it it was aged 20. We also agree that the benefit we are going to derive from horse is spread over for more than 1 year and also we are going to benefit for the next 20 years appx.

then shouldnt it be a prudent practice to write off 245000/20 = Rs. 12250 each year so that all Financial Statements over a period of next 20 years reflect true and fair view of our accounts.

After all we shouldnt loose the sight that presenting true and fair view of business state of affairs is the basic purpose of preparing accounts.

Regards

This horse is taking members on the ride for sure :-)

any conclusive reply on my query?