Depreciation

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SHALINI JAIN (Querist)
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09 September 2008 The Company has changed the method of Depreciation, the depreciation is now recalculated with the new method from the date the asset was put to use . Now my querry is that:
a) whether the diff in the amount of Depreciation due to the old and new method should be shown below the line or above the line .
b)whether the diff will be considered for calculating the book profit I.e if the diff is shown above the line then whether we have to add back or deduct as the case may be from the Net Profit or Not.
c) In Calculating the Book profit, if the company has brought forward Business loss and unabsorbed depreciation, whether the lower of the business loss and unabsorbed depreciation will be deducted from the net profit for calculating the Book Profit.

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Guest (Expert)

09 September 2008 Depreciation figure can be shown below or above the line but the better option is that show the depreciation for the current year as normaal depreciation and other as "change in a/c.g policy/method" and below the line.

Furher in calculation of book profit the depreciation which is debited to p&l a/c. needs to be added back and the depreciation as per income tax rules will be deducted.

Lower of B/f loss or u.a.depreciation will be deducted from net profit for book profit calculatio purpose

SHALINI JAIN

SHALINI JAIN (Querist)
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10 September 2008 Hello Mr. Rohit,
I think in the calculation of Book profit, Depreciation as per Income Tax Act has no role. We make no adjustments for depreciation as per IT Act as per sec 115JB to arrive at Book Profit.So my querry is whether the amount of Depreciation due to the change in the method of Depreciation which has been credited to p & l account will be deducted from Net Profit to arrive at Book Profit, and whether the lower of Business loss and unabsorbed depreciation Brought forward can be deducted to arrive at Book Profit.

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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13 September 2008 Yes Ms Shalini, you are right The depreciation as per books is not to be reconsidered. Also, the amount of depreciation written back will have to be deducted to arrive at the book profit for the year. As such, it is better that the amount to be written back is adjusted to the Profit and Loss Appropriation account,.i.e, below the line. In this way the amount written back will not have to be adjusted to arrive at the book profit. However, it should be noted that the writing back of depreciation because of change in method will result into a change in b/f of depreciation loss which should be taken care while giving adjustment for b/f loss or depreciation whichever is less.

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