Firm's accounts

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Dhaval (Querist)
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01 October 2012 While preparing firm's balance sheet, in fixed assets for depreciation which rate should be used?
Rate as per company law or tax law.
Please explain.

aadish

aadish (Expert)
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01 October 2012 Hiiii...

you are asking that for a firm, so its but obvious that company's depreciation rate shall not be applicable to you firm), so apply income tax rate.

Hope your query is resolved.

Dhaval

Dhaval (Querist)
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01 October 2012 I think this is wrong.
If you see ITR 5, in sheet BP they ask for depreciation debited to P&L and depreciation as per tax law.
If in firm's accounts depreciation as per tax is to be used then it will not be as per ITR 5.
And also deferred tax will also not arise.
Clarify.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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01 October 2012 In order to avoid any complications in working use income tax rates of depreication for firms.

Dhaval

Dhaval (Querist)
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01 October 2012 ok but what about deferred tax & ITR 5 where it shows dep as per books & allowable as per taxation act.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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01 October 2012 If book deprecaition and income tax depreication is same then same amount will be allowed and disallowed in ITR and also there is no difference in book and income tax depreciation then no question of making any deferred tax asset.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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01 October 2012 1. Depreciation rates provided in Companies Act are mandatory only for a company.

These rates are not mandatory for a partnership firm.

However, a partnership firm may adopt these rates or any other rates.

2. Normally depreciation in case of partnership firms is calculated at the rates provided in the Income Tax Act. This is done to avoid calculation problems and avoid DTA/DTL calculation.

3. While filing ROI, since the depreciation amount as per P&L and as per Income Tax Act is same, the same amount will be filled in the form and there will be no disallowance.

aadish

aadish (Expert)
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01 October 2012 Hope now your query is resolved you can use companies tax rate but to avoid difficulties use income tax rate, as companies tax rate is mandatory for companies and not for any other entity. and there is no other third tax rate.

Dhaval

Dhaval (Querist)
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01 October 2012 thanks everyone & Siddhartha for your satisfactory reply.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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01 October 2012 You are welcome. You should use the thanks button to convey your thanks.

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