Capitalisation of Asset

The main objective is to show the True and Fair view of the Financial Statements. Capital Assets have a useful life which is more than one year depending on its usage. If it is debited to P&L A/c then the entity will not show the correct profit earned by it. Thus such capital asset needs to be capitalized ie. shown in balance sheet. The entity can claim depreciation on the Capital Asset as per the rates prescribed by the Income Tax Act, 1961.

Regards,

Devendra K

On capitalisation of assets only depreciation is charged to P&L account thus the bottomline reflects the true and fair picture o the entity.