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Whether vehicle or equipment

Sanjive Kumar Singh (CHARTERED ACCOUNTANT) (79 Points)

30 June 2010

1. Whether forklifts, mobile cranes, lifting equipments etc. used inside a factory will be termed as vehicle, an equipment or something else.

2. How to distinguish between a vehicle and a euipment.

3. In terms of a manufacturing company what is meant by "development of property". Please explain with example.

Please explain with justification.

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4 Replies

Venkateswara Rao Sapare (Accountant) (1500 Points)
Replied 30 June 2010

1) “How to distinguish between a vehicle and a equipment?”, Let me understand from what point of view do you want to understand by distinguishing it, is it from “INCOME TAX – Depreciation”, or “COMPANIES ACT – Depreciation”?

From both Statues, this classification makes very less impact, unless the vehicles are put in the business of running them on hire.

2) In terms of a manufacturing company what is meant by "development of property".

Expenses incurred on development of property are given a treatment of “CAPITAL EXPENDITURE”.

Sanjive Kumar Singh (CHARTERED ACCOUNTANT) (79 Points)
Replied 30 June 2010

Dear Mr. Rao,

Thanks for ur reply. My query was from Accounting and not income tax. It makes a difference because vehicle is shown seperately in Gross Block schedule whereas if we categorise any such item as equipment then it will be classified under Plant & Machinery. Now please differentiate between the two.

Your answer to my second question regarding development of property is not clear. Please give some example of a case of development of property in case of a company engaged in manufacturing of steel. Please not that as per schedule VI requirement development of property is required to be shown seperately in GB schedule.

A learner (Corporate Accounts ) (345 Points)
Replied 30 June 2010

Hi Sanjive,

1. Tools you mentioned are shown by companies in equipments in Plant & Mach. they are not part of vehicles be it a forklifter or lifting tool.But some companies show forklifter in vehicles also. Lifting tools are shown by companies in equipment in general

2. Development of property : Say you want to build something on a piece of land. Before that you do a filling work, levelling of land, base formation etc. I think that can be termed as development of property. Better you ask specifically which item you want to show in this head, then may be we would suggest you whether to include there or not.

Thanks & Regards,

Sanjive Kumar Singh (CHARTERED ACCOUNTANT) (79 Points)
Replied 30 June 2010

Hi Sunny,

Thanks for your reply. Let me explain the case of Development of property. As per schedule VI of Companies Act Fixed Assets are required to be classified as (a) goodwill, (b) land, (c), buildings, (d) leaseholds, (e) railway sidings, (f) plant and machinery, (g) furniture and fittings, (h) development of property, (i) patents, trade marks and designs, (j) livestock, and (k) vehicles, etc.

You have mentioned that filling work, levelling of land, base formation etc on a piece of land can be termed as Development of Property. Ours a new company and is setting up an integrated steel plant. We have acquired land and have done lot of development work on that land like filling, leveling etc. Please let me know that the cost of land and the development expenses will be grouped under "Land" or "Development of Property" as per schedule VI requirement in the Gross Block.