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Depreciation - Asset demolished/ discarded

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Rider ride

CA Final

89 Points Posted on 07 May 2010

hi .....

I faced a problem during the audit--

A Co. had a branch office taken on rent . Furniture - fixtures worth 15 lacs were installed 3 years ago and co was claiming dep. on that part. Now they shifted their office and furniture was unfixed and shifted but during that process furniture worth 5 lacs was destroyed ( eg. sunmica , glasses ). Now what should be the treatment -

1) whether it should be reduced from WDV as asset demolished/destroyed and at what value.

2) Can we do tax planning by showing scrap sale ( say rs. 10000) of that furniture. With this only scrap value of Rs. 10000 will be reduced from WDV.

Thanks

Replies (1)

Amir

Learner

4898 Points Posted on 08 May 2010

Dear Friend,

Under Companies Act i:e Books of Accounts - Asset that has been destroyed should be removed from Fixed Assets & appropriate loss should be recognised in the P/L A/c

Assets that are not in use (retierd)& held for disposal should also be removed from the Fixed assets & should be shown under Inventory as "assets held for disposal" & should be valued as lower of "Book value or realizable value"

Under Income Tax - Continue claimimg depreciation. No adjustment needs to be done. Only actual sellinf price/scrap value shall be reduced from the Block of assets.(Assumng there are other assets in the same block)