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Depreciation

Dhruv (Student CA-IPCC) (68 Points)

17 October 2011

Q=The written down value of plant and machinery in the books of Alpha Ltd. is Rs.
75,00,000 as on 1st April, 2010, on which date, the installed capacity of the company was 12,000 tons. Alpha Ltd. borrowed Rs.10,00,000 @ 10%p.a. from ICICI Bank on
1.8.2010 for purchase of new plant and machinery for extension of its existing
business, which would increase its installed capacity to 13,000 tons. The new plant
and machinery was purchased on the same date but was put to use only w.e.f.
1.11.2010. Compute the depreciation admissible under section 32 for the A.Y.2011-
12, assuming the applicable rate of depreciation on plant and machinery to be 15%.?

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7 Replies

CA Rachit Gupta (Chartered Accountant) (1315 Points)
Replied 18 October 2011

As per question, I think it will calculated as follows:

Interest for the period 01.08.2010 to 31.10.2010 shall be capitalized & added to the cost of the asset purchased

Interest from 01.11.2010 shall be claimed as revenue expenditure

Calculation as follows:

Opening WDV Rs.75,00,000

Cost of asset purchased Rs.10,00,000

Interest capitalized Rs.25,000 (10,00,000 x 10% x 3/12)

Total Rs.85,25,000

Normal Depreciation Rs.12,01,875 [(10,25,000 x 7.5%) + (75,00,000 x 15%)]

Additional Depreciation Rs.1,02,500 (10,25,000 x 10%)

Closing WDV Rs.72,20,625

Note: Depreciation shall be restricted to 50% since asset is put to use for less than 180 days.

Girish K (Senior Accounts Executive) (218 Points)
Replied 18 October 2011

Hi Rohit,

Pl explain why you have taken additional depreication of 10% on new p&M.

Thnx,

Girish

CA Rachit Gupta (Chartered Accountant) (1315 Points)
Replied 18 October 2011

Hi Girish...Its not Rohit, its Rachit...

I think benefit of additional depreciation is available on purchase of new plant and machinery @ 20% and if it is used for less than 180 days, it shall be restricted to 50%..

Girish K (Senior Accounts Executive) (218 Points)
Replied 18 October 2011

Hi Rachit,

oh.. My Apology for mis-typing your name.

Regd Addl. Dep : is this section 32(1)(iia) which you have mentioned ..? if so for that some conditions to be satisfied if I m not wrong. But I just want to know can we presume like wht you have done in the above calculations..in our exams?

Thanks,

Girish