Depreciation

Stat Audit 884 views 8 replies

Dear All,

My client has purchased an ERP software and he is claiming the depn. on it. However, the same has not been put to use fully and customisation is going on still. He is also using his old accounting systems and major reports are generated from it.

Can it capitalised and claim depreciation on the same.? or should we show it in Capital WIP.

Please help

 

Replies (8)

AS 10 prescribes capitalizing an asset when it is put to use and as per AS 6 we have to charge depreciation on such capitalized amount.

 

It is silent of partial or complete usage and hence will be contruted to mean both.

 

But if the asset is divisible into components which can be considered as different assets, you must treat them separately.

 

Thanks Deepesh,

But as far as I know, a company can clasify a thing into as Asset when the same is to be held for more than one accounting period and he company derives the beneit from the same.

However in the given case, the company is not deriving the benefit of ERP as the same is still under installation.

Thus is the company right in claiming depreciation.?

The company should "expect to derive future benefits" from the asset. The timing of deriving benefit is irrelevant.

 

And for the part of holding for more than one accounting period, am assuming the company plans to use the ERP Software for more than that.

Also currently is company is using the ERP partially. If such use is in the nature of trial run only and no actual use in the course of business is being carried out, then depreciation cannot be charged.

The company is not using it. It is just making entries in ERP to check whether the reports generated are proper or not.

That makes it a trial run and hence it has not been put to use. Depreciation cannot be charged on the ERP software as of yet.

Depreciation cannot be charged on the same because as said by you that the asset is under progress, so there may be some more cost incurred on that,hence we have to take total cost incurred on the asset as cost of the asset.

Depreciation under companies act has to be taken on the date of capitalisation of asset not on the date whether it has put to use or something else

 

yes Avinash is Right


CCI Pro

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register