Capitalisation of Expenditure

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ajay kamble (Querist)
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22 January 2009 X ltd having Computer Worth rs. 25000 in balance sheet during the year x ltd paid rs. 6900 for purchase of software, Rs. 2500 for the maintainance of website, Rs. 3690 purchase of ram, so shall X ltd have to capitalise Rs. 6900 if yes then what is the rate of depreciation in companies act and in cometax act.

Mohammed Neesar

Mohammed Neesar (Querist)
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22 January 2009 1) How do we close books ?
2) what do u mean by Accumilated Deprecion

CA.ViVeK M ACA

CA.ViVeK M ACA (Expert)
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22 January 2009 By passing theclosing entries and adjusted entries you can close your books of accounts.

Deepak Agrawal

Deepak Agrawal (Expert)
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22 January 2009 As regards software, capitalization is stillan subjective matter ecen in practical life...

Many capitalize it & many write it off.

Fact is that U never purchase a software. U just purchase rights / license...

It depends on nature of software.

It its totally new software & needed to run computer, then it will be capitalised with computer & if seperately purchased (as in ur case), then it will be capitalised (depending on nature of software) & it will be armotized over useful life. AS 26 says 3-5years are sufficient...

But softwares like SAP ERP can be armotized over many years as cost runs into crores.

Deepak Agrawal

Deepak Agrawal (Expert)
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22 January 2009 Accumlated depreciation is the total depreciation charged from inception

CA Amarpal

CA Amarpal (Expert)
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24 January 2009 Dear Ajay,

As per the given facts,

As per AS- 10, the expenditure which increases the efficiency of the assets as compared to inital efficiency will be capialised.

As per Indian GAAP. If the software is such that which are required to run a computer, then it will be capitalised as Computer.
if a separate software, then it will be dealt by AS- 26.

AS per companies act, the assets which are of Rs. 5000 or less shall not be capitalised.

amarpal@icai.org

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