Depreciation

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kiran (Querist)

02 July 2019 Hi Team,
If assets useful life is over whether i have to retain 5 % of cost of asset as retained dep or I dont have to calculate on assets whose useful life has ended.
Plz help

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

02 July 2019 5% to retain. Inference - Corollary to note 7(b) of Schedule II.

kiran

kiran (Querist)

03 July 2019 Thank you, sir for your reply. One more question - If net block of some of the assets is zero then what to do? whether to take 5% on cost of assets as retained dep or not to take any dep on that assets.and whether that retained dep is part of current year dep (Profit and loss)

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

21 July 2024 When the net block of an asset becomes zero, it typically means that the accumulated depreciation equals the original cost of the asset. In such cases, here’s how to handle the depreciation and the treatment of retained depreciation:

### Treatment of Assets with Zero Net Block:

1. **No Further Depreciation:**
- Once the net block of an asset becomes zero, no further depreciation is charged on that asset. This means you stop depreciating that particular asset because its cost has been fully allocated as depreciation expense over its useful life.

2. **Retained Depreciation:**
- Retained depreciation refers to the cumulative depreciation that has been charged on an asset up to the point where its net block reaches zero. It represents the total depreciation expense recognized in the past for that asset.
- While no additional depreciation is charged once the net block is zero, the retained depreciation is not reversed or taken as an expense in the current year's profit and loss account. It remains as historical depreciation expense already accounted for in previous periods.

### Example Scenario:

- **Original Cost:** Rs. 100,000
- **Accumulated Depreciation:** Rs. 100,000
- **Net Block (as of now):** Rs. 0

In this case:
- The asset's net block is now zero because accumulated depreciation equals the original cost.
- You do not charge any further depreciation (such as 5% on cost) because the asset is fully depreciated.
- The retained depreciation of Rs. 100,000 (in this example) is not treated as an expense in the current year. It remains as historical depreciation.

### Conclusion:

Assets with a zero net block no longer contribute to depreciation expense in the current or future years. Retained depreciation is not reversed but remains on the books to reflect the total depreciation expense incurred over the life of the asset. It's important to maintain accurate records of these assets and their depreciation to comply with accounting standards and taxation requirements.

If you have specific circumstances or additional details about the assets in question, consulting with a qualified accountant or tax advisor would be beneficial to ensure compliance with relevant accounting standards and tax laws.

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