28 February 2013
a sole proprietor charges depreciation as per income tax act. he exchanged his car with another car. Whether he can recognize profit in such transaction? what will be the journal entry?
28 February 2013
Debit the New car and credit the old car with the fair market value of the old car as on the date of transfer(exchange) or the book value of the old car which is available.
As well as according to the Income tax act for depreciated assets Profit or Loss doesn't considered at the time of sales it considered as short term capital gain or loss only at the time of such block of assets WDV becomes Zero or negative during the year at any time.
However if you want to recognise profit or loss on such exchange in your books you can recongnise by crediting the profit amount to P&L account or loss amount debit to P&L account but while you filing of income tax return you have to adjust it according to the income tax act.
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