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Asset depreciation calculation

Balamurugan (Accounts officer) (24 Points)

28 October 2021  

Dear Experts,

I would like to get your opinion on the below question.

We have purchased the machinery on 05.09.2021 value of Rs. 100000, We have installed & capitalized the same on same day i.e 05.09.2021. Later we have purchased the additional spare for the machinery which will increase the efficiency of the machine on 05.10.2021, Value Rs.50000. Installed on 05.10.2021.

Now, Both the first purchase & addition value in the same machinery (asset code), 

1. Depreciation to be calculated @ 13.33% on 1,00,000 from 05.09.2021 & for 50,000 from 05.10.2021

2. Depreciation to be calculated @ 13.33% on 1,50,000 from 05.09.2021

3. Depreciation to be calculated @ 13.33% on 1,50,000 from 05.10.2021

Kindly advice.

 2 Replies

CA Aakarsh Jain (CA in Practice) (2895 Points)
Replied 28 October 2021

1st option is correct

yasaswi gomes (My grammar is 💯 good I)   (6646 Points)
Replied 28 October 2021

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item should be depreciated separately. Where, during any financial year, any addition has been made to any asset,  the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition.

Dep for additional unit= Pro-rata depreciation Rate= {1-(Scrap value of asset/Cost of asset)^(1/remaining useful life of asset)} x [Number of days from date of asset purchased till financial year-end/365] x 100 (WDV Method)

The above is for calculating dep as per companies act.

As per Tax act, depreciation is calculated at full rate given if the asset is used for > 180 days or half rate of the given rate if the usage is <180 days.

Finally, you can calculate your Deferred Tax liability.

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