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Depreciation and deduction for new car

Udai (first year) (25 Points)

12 March 2016

What is the value of a NEW car for calculating depreciation? Is it

(a) Total amount paid to acquire the car (including VAT, Road Tax, Handling Charges, external music system and Insurance); or

(b) Amount paid to acquire the car excluding VAT, Road Tax, Handling Charges and Insurance; or

Reply is sought SOLELY for calculating first year depreciation.

Understandably, the depreciated value for subsequent years would be 15% lower than the previous year's value.

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7 Replies

CA Raj Doshi (Practising CA) (8786 Points)
Replied 13 March 2016

Answer to your question is point a.

Max Payne (employed) (2569 Points)
Replied 13 March 2016

Yes, agree with Raj.

Option (a) is consistent with AS-10 for accounting purposes and Section 43 of the Income Tax act for tax purposes.

Take option (a).

Udai (first year) (25 Points)
Replied 13 March 2016

While I agree that VAT and Road Tax could be included for Depreciation, I strongly feel that Insurance is paid on an yearly basis and should be a Deduction, rather than forming component of Depreciation. It will be a recurring cost.

CA Raj Doshi (Practising CA) (8786 Points)
Replied 13 March 2016

Insurance paid for the 1st year is capitalised since payment of insurance is mandatory for bringing the car on the roads. It is an expense to make the asset ready to use and hence to be capitalised.

sandeep (student) (31 Points)
Replied 14 March 2016

A because its allover the part of cost

sree harsha (Article Trainee) (73 Points)
Replied 18 March 2016

I agree with other experts on insurance and others. But with regard to vat and excise, if it's eligible for credit, then I feel it should not be included into the cost of the asset for calculating depreciation.