Dear friends I need ur help...
We were providing depreciation for windmill @ 28% (triple shift rate), now recoginised that the actual rate was 15.33%.
The machine was in operation for three years. So can we account directly @ 15.33% from this year or should we have to pass some adjustment entries. If yes,kindly tell me the accounting procedures and entries....
you have to pass adjustment of entry for past diffreance of depreciation
Procedure to be followed in case of change in rate:-
1. Depreciation should be recomputed applying the new method/rate from the date of its purchase/installation till the date of change of method/rate.
2. Difference between the total depreciation under the new method/rate and accumulated depreciation under the old method/rate till the date of change may be surplus/deficiency.
3. Such resultant surplus is credited to profit & loss account under the head "Depreciation written back".
4. Such resultant deficiency is charged to profit and loss account.
Such change of depreciation rate/method should be treated as change in accounting policy and its effect should be quantified and disclosed.
Plz clarify if i m wrong.
Mr.Kamal thanks foryour reply. Will that have any impact on the income tax point of view?
Another part is that, is it really a change in acounting policy as providing depreciation at a different rate was due to the ignorance of the staff.
So whether it should be disclosed in the notes?
| Originally posted by : Rohtash | ||
 |
Dear Peter, Preparation of financials is the responsibility of the management which includes staff. Thus, it is assumed that the mistake is from the management`s side. Therefore, only the effect of the same should be stated in the notes to accounts.. Regards, Rohtash Hurria |
 |
Depreciation is an integral part of audit. when there is a change in rate due to inadvertence then the method has to be applied retrospectively and the resultant excess or short depreciation has to be accounted in P&L a/c.
It will not impact on income tax figures as book depreciation is added back so the net profit wont change
it is change in accounting policy therefore disclosure in notes to accounts by stating the net impact on current year profit is necessary by way of quantification.
it will impact deferred tax figure as per AS 22
Mr.Someshekhar and Rohtash:-
Rather than acounting it as depreciation written back,can we account it as prior priod income and show notes accordingly?
As per AS-6 recompute the depreciation @ 15.33% for the three years and the difference between the already depreciated amount and Depreciation @ 15.33% should be shown in P&L A/C. We cant treat as prior period item as there is noquestion of ommision in the past years.
Sir?Madam
Depreciation is a one of the important head which affects Deferred tax, Is there any other heads which affects deffered tax liability of assets. Plz if any one having answer of it plz let me guide.
Mukesh
If there is a change in rate of depreciation from year to year there will be prospective effect. I.e., It is not required to recompute the depreciation from the date of acquisition.
As per AS-6 the recomputation of depreciation is required, when there is a change in method of providing depreciation like from WDV to SLM or viceversa. The draft of te AS-6 is also provided for your information.
CAclubindia
