Depreciation excess provided

4987 views 8 replies

Max Payne

employed

2574 Points Joined May 2008

Dear Friends

Suppose that one company is having a policy of providing depreciation at minimum rates prescribed in Sch XIV of the companies Act on WDV basis.

But in many years, for many assets, excess depreciation has been provided because the rate applied was 18.10% instead of 13.91%. Also for some assets, the rate applied was 13.91% instead of 18.10%.

He also applied arbitrarily depreciation at half rate and full rate depending on whether asset was put to use for 180 days or more (Income tax Act treatment).

Now how to rectify these mistakes, what disclosures to be made in the financials. Will it be a correct treatment to write back to the P&L account or to provide arrears of depreciation?

Please share your valuable views

Replies (8)

Arvind Khemka

practicing CA

210 Points Joined February 2009

The company can provide depreciatin as per income tax act or any other rate as the company thinks is suitable for the said asset.But the Co needs to give the Disclosure of the same that the company has not provided depreciation as per Schedule XIV

Max Payne

employed

2574 Points Joined May 2008

Thanks aravind...

but how to show the effect of rectifying entries in the financial statements?

Arvind Khemka

practicing CA

210 Points Joined February 2009

aree r u Wanting 2 rectify it??? IF YS THEN NORMAL depreciation Ac Dr to Pl or vice versa but the same should be disclosed in Notes on accounts

Arvind Khemka

practicing CA

210 Points Joined February 2009

change in accounting policy has to be reported as per AS 5 with the effect on profit due to such change

Amir

Learner

4016 Points Joined December 2009

Hi Brother,

In Books of Accounts -

The disclosures are to be made in accordance with AS-5 as correctly said by Arvind.

Only thing is it will be disclosed as Prior Period Item and not as changes in Accounting Policy.

Under Income Tax -

Well, tough one!

You got to do Cost benefit analysis before seeking corrections in terms of revision of returns, be careful since AO may reopen your earlier years upon any such declaration (revision of returns).

Hard time for you if you are a tax-auditor of such a company!

Max Payne

employed

2574 Points Joined May 2008

Hi bhai... glad to see you back...

the problem is that we are trying to rectify depreciation this year to restate the correct position...

The previous years depreciation were wrong outright, in terms of schedule VI disclosure requirements, actual depreciation provided, and AS-6 was "overlooked", besides some other Accounting standards other disclosures.....

This suitably explains my "hard time"

Thanks

Arvind Khemka

practicing CA

210 Points Joined February 2009

since its a mistake the same should be dealt as per As 5 ie prior period items . otherwise the same could be treated as change in accounting policy as per AS 4. As for Income tax nothing matters as they have their own rates while calculating TAxable income and it will not be affected...but DTA/DTL created as per AS 22 will be changed

Manoj Adhikari

30 Points Joined September 2010

I m also facing the similar type of problem. In my case the company has not reduced the fully depreciated assets from its gross block column which is in excel sheet. Every year depreciation is being calculated on this opening gross block value as per the prescribed rate and proportionately on the assets acquired during the year.How to solve this problem? the company was established on 1988 and all the books since then are not available. Please express your view.