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Depreciation

sumit agarwal (Student cum tutor cum tax adviser) (52 Points)

23 September 2008

Dear Friends,

While preparing balance sheet of a Private Co., I have an Query

A Car was purchased few years ago(1/04/2001 to be specific) for Rs625836.80,now this year it has been sold
for Rs 155000.00.When I calculate depreciation as per Companies act it shows a loss.But while calculating Depreciation as per IT act,profit is arrived.

Any body please Suggest the Correct treatment of this entry.Should I show Loss in P/L Acc or Profit ???
Does Deferred Tax anything to do with it?????

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14 Replies

CA Annie (Chartered Accountant ) (747 Points)
Replied 24 September 2008

You have to pass the entry as per companies act in the books of accounts. while calculating computation of total income this amount is anyway disallowed and only the depreciation as per IT is allowed as deduction. There you have to add back the loss as booked by you. hence the profit part will be taken care of in the depreciaton as per income tax act.

Yes the WDV as per the Income tax act and as per books has an effect on deferred tax.

CA RAMESH KUMAR AHUJA (CA, DISA, LLB) (5452 Points)
Replied 24 September 2008

You have to charge depreciation in the books at rates given in schedule IVX of the Co Act upto the date of sale and adjust the balance WDV against the Sale Consideration. The loss suffered is to be booked as Loss on Sale of Fixed Assets.

In computing the Taxable Income under the Income Tax, add back depreciation and loss on sale of asset to the Proft as per P&L a/c and adjust the Sale Proceeds to the Block of asset and calculate the depreciation as per Income Tax which will be claimable as depreciation allowable as per Income Tax Act. In case there is no other asset other than the one sold out then the Gain is taxable as a Short Term Capital Gain u/s 50 of the Income Tax Act.

CHEZHIYAN (SENIOR FINANCIAL ANALYST) (2517 Points)
Replied 24 September 2008

Annie is Right

sankar024 (Finance Professional) (35 Points)
Replied 24 September 2008

Originally posted by :sumit agarwal

Dear Friends,
While preparing balance sheet of a Private Co., I have an Query
A Car was purchased few years ago(1/04/2001 to be specific) for Rs625836.80,now this year it has been sold
for Rs 155000.00.When I calculate depreciation as per Companies act it shows a loss.But while calculating Depreciation as per IT act,profit is arrived.
Any body please Suggest the Correct treatment of this entry.Should I show Loss in P/L Acc or Profit ???
Does Deferred Tax anything to do with it?????
we have to follow the company act

no need to worry about the IT act

Anil (Article) (24 Points)
Replied 09 May 2009

Originally posted by :CA RAMESH KUMAR AHUJA
"	You have to charge depreciation in the books at rates given in schedule IVX of the Co Act upto the date of sale and adjust the balance WDV against the Sale Consideration. The loss suffered is to be booked as Loss on Sale of Fixed Assets. In computing the Taxable Income under the Income Tax, add back depreciation and loss on sale of asset to the Proft as per P&L a/c and adjust the Sale Proceeds to the Block of asset and calculate the depreciation as per Income Tax which will be claimable as depreciation allowable as per Income Tax Act. In case there is no other asset other than the one sold out then the Gain is taxable as a Short Term Capital Gain u/s 50 of the Income Tax Act.	"

Anil (Article) (24 Points)
Replied 09 May 2009

Originally posted by :CA RAMESH KUMAR AHUJA
"	You have to charge depreciation in the books at rates given in schedule IVX of the Co Act upto the date of sale and adjust the balance WDV against the Sale Consideration. The loss suffered is to be booked as Loss on Sale of Fixed Assets. In computing the Taxable Income under the Income Tax, add back depreciation and loss on sale of asset to the Proft as per P&L a/c and adjust the Sale Proceeds to the Block of asset and calculate the depreciation as per Income Tax which will be claimable as depreciation allowable as per Income Tax Act. In case there is no other asset other than the one sold out then the Gain is taxable as a Short Term Capital Gain u/s 50 of the Income Tax Act.	"

SK. MAKSUD (ACCOUNTS MANAGER) (40 Points)
Replied 04 July 2009

Sir,

It is possible that we sold the asset & depreciation charge on it as per Income Tax Act & as per Companies Act from 1st April 2008 to date of Sold or we can not charge any depreciation on that assets.

CA Devanshi Gandhi (Ajani) (FCA DISA Mcom CIFRS & LLB) (9058 Points)
Replied 05 July 2009

the way of calculating depreciation is different under income tax and companies act so thre will always be difference in the depreciation amount.

(Guest)

Since it is a company the Profit or loss on sale of a fixed asset should be calculated by considering the Rates of deprecaition in Sch Xiv. The Profit / loss shd be disclosed separately in the P&L.

The Profit or loss under IT Act will depend whether the BLOCK of assets to which the car belongs exist as on 31.03.. or not.

If the WDV of the block is NIL then the difference between WDV & the consideration will be Short term Capital gain

Anoop Garg (FCA) (120 Points)
Replied 06 July 2009

one has to understanddifference between Book Profit and Tax Profit,The treatment suggested by Priyadarshini is absolutely correct.

Manish (Accountant) (25 Points)
Replied 17 May 2010

Dear All

I Want to know the mathod of Depreciation as per Company act & Income Tax, plz send me calculation if any on my e-mail address manish_garg001 @ yahoo.co.in

with regards

Manish Sharma

KUSHAL AGRAWAL (CA Final Student) (128 Points)
Replied 24 May 2010

everones correct

Ankit Sachdeva (MBA) (26 Points)
Replied 25 July 2014

Hi,

Below Query is only for Income Tax Purpose:

I own a 2-wheeler & a 4-Wheeler for business purpose, both form a block of Fixed asset entitle to get 15% Depreciation.

Wheras, 4-Wheeler sold at Sale Value of Rs. 9,50,000/- on 21/03/2014 that had W.D.V. of Rs. 10,72,038/- on 01/04/2013.

WDV for 2-Wheeler is Rs. 27,021/-.

Combined to a Block W.D.V is Rs. 10,99,059.

Now, Can I claim depreciation (4-Wheeler Seperate or it will be in a block only for Income Tax purpose) and how to calculate Capital Loss and show in Balance Sheet? Please advise.

I tried to file ITR4 in 2 ways:

(I) Claiming Depreciation in a Block (2-wheeler & 4-wheeler both):

a) If I claim Capital Loss U/S 50 which comes to Rs. 149059 (Sale Value-Purchase Value) if I claim deprecication (Which is Nil) on this block and Nil Value of this bolck for future but I still own 2-wheeler.

b) If I don't claim Capital Loss U/S 50 than depreication is Rs. 22,359/- and WDV for future is Rs. 1,26,700/-.

II) Claiming Depreciation only for 2-Wheeler and show 2-wheeler WDV in Balance Sheet:

Whereas show Loss on sale of 4-Wheeler i.e. Rs. 122027/- (Sale Value-WDV) and show as Capital Loss in Balance Sheet, No Depreciation.

Please advise which is the right way.

Thanks & Regards

Ankit Sachdeva