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How is depreciation calculated here?

Varun (CS Executive) (320 Points)

14 August 2012

Company "A" takes over assets (Furniture and equipments) from company B. (Assets were purchased and put to use 3yrs 9 months ago and now sold)

How should company B charge depreciation while selling it to company A? 3yrs or 3yrs 9 months?

Kindly answer.

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3 Replies

Shah Tarun (Student) (800 Points)
Replied 14 August 2012

Hello,

For accounting purpose,as per company act,depreciation will be for 3 years and 9 months that is period of asset was put to use.That means in the year of tranfer depreciation will be charged for 9 months in the book of "B".

However for Incometax purpose depreciation will be for 3 years as asset is sold by "B" in 4th year it will bededucted from "Block of Asset" in case of "B" in 4th year .

-reply modified

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yuvak (Practising CA) (144 Points)
Replied 14 August 2012

Hi,

Per Accounting laws, depreciation will be for 3yr9mts. However, for Income tax purpose, under the 'Block of Assets' concept, there would not be any depreciation for the 9mts period and therefore, this would be Short Term Capital Gains/ Loss, as the case will be.

Cheers

Yuvak

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