Depreciation-cash system of a/c -pur of asset on installment

Mr. A is following Cash system of accounting. Accounting yeat is Apr-Mar

He purchased an Capital asset in Installment Basis payable in 24months (or Credit Basis) in Month of October

How transaction would be accounted in the books of Mr.A

How depreciation would be charged on Asset.

Kindly give refrence to Case laws under Income Tax Act 1961

Replies (2)

Since the CAPITAL ASSET has been purchased it means that the OWNERSHIP has been transferred even though it has been purchased on INSTALLMENT BASIS . Hence the Depreciation has to be charged on the COST of the CAPITAL ASSET . Since it has been purchased in OCTOBER 1/2 year depreciation will be allowed to be deducted from cost to arrive at WDV . In case the CAPITAL ASSET would have been purchased on HIRE PURCHASE BASIS then the depreciation would have been applied on the total amount paid including INTEREST ....

under cash system of Accounting there will be a entry of cash inflows and out flows. hence in this case only entry of cash part will be done. ie.

 

Assets A/c Dr..............................(Principle)

Interest A/c Dr............................(Interest Paid)

                      To cash / Bank

 

 

Under Cash Accounting

It does not provide the complete picture of the financial position i.e. information on assets and liabilities are not available for fixed assets (land, building, machineries, defence, heritage assets etc.). hence current depreciation can not be calculated.

 

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