Depreciation

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bhushan gupta (Querist)
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05 December 2012 A private ltd. company has machiney w.d.v. as on 01.04.2011 rs.50lakh. There was foreign liability outstanding against it as on 31.03.2012. Now due to exchange variation there was reduction in foreign liability by Rs.5 lakh.

Company want to do following thing:

Depreciation as per books to be taken on 45 lakh. however auditor is maintaining that deprecaition as per books should be taken on 50Lakh for the financial year 2011-12. however deprecitation can be taken by taking effect of exchange varition for 2012-2013 because for full financial year assets value was 50lakh. Please suggust us as depreciation of book will effect book profit and result to effect on MAT also. Please mention the required portion of Relevant accoutning standard also.Thanks

Amol S Joglekar

Amol S Joglekar (Expert)
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05 December 2012 The value for depreciation is 50 lakh. What has changed is the foreign obligation... LOAN as is normally understood. You need to account for the exchange gain as on 31/03/2012 in that case.

bhushan gupta

bhushan gupta (Querist)
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06 December 2012 But As per accounting standard of depreciation and AS-11 foreign exchange variation has to be adjusted to the carring amount of fixed assets which was acquired from foreign loan. Further if it is not adjusted with related fixed assets then where it should be adjusted. I understand that Section 43A does not allow foreign exchange variation to be adusted with related fixed assets untill exchange variation arise on payment. However depreciation as per books has to be provided in accordance with related accounting standard.
It is humble request to consider all relevant provision andl also elaborate the answer with related accounting standard and income tax provisions. Thanks

CA Dhaval Patel

CA Dhaval Patel (Expert)
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06 December 2012 Please refer Para 9 and 11(b) of AS11.

You need to provide depreciation on Historical Value for Books of Account.

You need to take into consideration sec. 43A for tax related depreciation.

Amol S Joglekar

Amol S Joglekar (Expert)
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06 December 2012 Reporting currency in your case is INR. 50 lakh is INR value and depreciation is to be charged on that.

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