Depreciation

A company purchases a machinery by exchanging a old machinery already in use. New machine market cost Rs.1 lakh. Old machine net book value after depreciation is rs.8000. Vendor agreed to take the old machine at rs.5000. So new machine price was settled at Rs.95000 (One lakh market value of new machine minus Rs.5000 for old machine). At what amount the company will show the new machine in its books? Rs.95000 or Rs.1 lakh? Kindly clarify with regard to AS and IT provisions.

Regards.

Ca Sanjay Baheti

Replies (2)

Dear Sanjay Sir,

U might have paid the net amount but books will disclose the entire transactions...

In Books

U have to record sales consideration of old asset, recognize gain/loss in the P/L A/c

Recognize New asset at Rs. 1 lacs

In Income Tax

If these r falling in same Block, which I suppose they r, then In Opening WDV u will add additions of Rs. 1 lacs & Less Sales consideration - Though the ultimate effect is same, what u would have got in cases of net entry, but then it's a matter of presentation..

If these are falling in different Blocks then No choice but u have to disclose the two transactions separately.........

I agree with Amir

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