Your question, “How should they account the demo vehicles used by them?”.
From your statement it gives an impression that the subject vehicle used for the purpose of demo is one that is one of the vehicles put for sale. It is also general assumption that no item accounted as an Asset would be sold as a regular product put for sales., in case it is sold ( which was treated as an Asset), the receipts would be classified as an “Investing Cash Flow”.
Now, next question is “Should demo vehicle be treated as an Asset”. Not necessarily. You need not show it as an Asset. It is a part of “Stock in trade”, and same would be put to sale and the receipts on the disposal of the same would be treated as “Operating Cash Flow”, like regular sale proceeds.
Is it clear, my friend, that the vehicle put for demo is not an asset?
Rate of Depreciation – Income Tax Act
As per Income Tax Act, “Machinery and Plant” and “Motor Cars” come under “Block 5” which carries Rate of Depreciation of 15%.
Here, we need to remember that, if the “Motor Cars” put the use in the business of Hire, Rate of Depreciation would be 40%.
Rate of Depreciation – under Companies Act
Rate of Depreciation on Motor cars is 30%.
If the same is used in a business of running them on Hire, Rate of Depreciation is 40%