an argument with the Finance Controller

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RamaKrishnan (Querist)

08 January 2008 Recently, I have attended one interview in a Leading Software Company. A qualified (CA) finance controller interviewed me. He asked the following question:

"We are a software company bought one computer server for forthcoming new project and bought special costly software for the same. Till the end of accounting year the project is not yet started and both the server and software are keeping idle. During the year end is it applicable for Depreciation?".

I replied that the asset has been purchased with the intention that expected to be used for the purpose of business hence liable to depreciation either used or not in the business.

He has taken Accounting Standard -6 "Depreciation" definition and it shows:
"Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset ARISING FROM USE, effluxion of time or obsolescence through technology and market changes."

plz note that it shows "arising from use", hence we had argument in this topic and I’m waiting for interview result.

Experts’ help required.
(plz mention the website where you have observed the point)

Amit

Amit (Expert)

08 January 2008 Dear Ramakrishnan,

If you carefully look at the Defination Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset ARISING FROM USE, effluxion of time or obsolescence through technology and market changes."

Words Arising from use, effluxion of time or obsolenece. Here words are not combined one, it is "or" that means any one of the condition is to be satisfied. It may be either due to use or efflux of time or obsolenece. So even if it is not used, depreciation is to be provided due to efflux of time once it is ready for use.

SHAMIM HAMEED

SHAMIM HAMEED (Expert)

08 January 2008 Under IT Act, u/s 32 depreciation can be provided only if asset is used for the business during the previous year. But under Companies Act depeciation has to be provided even if asset remains idle.

RamaKrishnan

RamaKrishnan (Querist)

12 January 2008 Thank you very much for experts' guide...

I've forwared this to the Finance Controller who has interviewd me...

RamaKrishnan

RamaKrishnan (Querist)

16 January 2008 Dear Experts’

With reference to the above topic and had discussion with my Superior, a qualified CA, has giving different opinion regarding the above topic. He said, as per Companies Act, Schedule VI, the above mentioned assets should be treated as Work-in-progress and the depreciation should arise from the year of put-to-use.

The experts’ opinion/suggestion/recommendation required.