Depreciation rate in proprietorship firm

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Gaurav (Querist)

30 July 2013 What is the rate at which depreciation is to be charged in the books of the proprietorship firm??

Can a proprietorship firm charge depreciation at the rates as per Companies Act. If yes, any effect to given in Tax Audit Report or Notes to Accounts??

Kumar

Kumar (Expert)

30 July 2013 In Significant accounting policy for depreciation, the depreciation rates need to be given instead of mentioning that the depreciation rates as given in Companies Act has been followed.

AS 6 states that assets should be depreciated over its estimated useful life and hence if rates higher / lower than Sch XIV of Companies Act need to be taken, please take such higher / lower rates based on the useful life of the assets

TAR - You need not report anything if assets are depreciated over its useful life

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C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)

31 July 2013 Since you are proprietorship concern the Companies Act is not applicable to you as your Balance Sheet and other financial statements are not a public documents. Therefore, you are covered under the Income Tax Act and accordingly you should charge depreciation as per the Income Tax Act which is the maximum allowable for calculation of your tax liability.

You are free to charge any amount as depreciation which is in your opinion the life of the assets lasts but under no circumstances any higher rate then the rates as fixed by the Income Tax Department shall be allowed to you for your tax purpose. You can charge lower depreciation to show more profit for giving better look to the financial statements or you may not charge any depreciation and claim the same only for Income Tax purpose. The can be done in case of immovable properties like Land & Building as the value never depreciates it is always appreciates.

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