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depreciation on windmill

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Priti

Proprietor

24 Points Posted on 02 January 2010

Assesee is owning windmill. The cost of windmill includes following:

(1) Tubular Tower (2) Copper wound transformer (3) WC for civil works incl foundation (4) Labour work charges for installation Wind turbine generator. (5) WC for works incl. supply and installation of electric items, testing & commissioning. (6) contribution/ charges towards use of power evacuation equipment. (7 ) wind turbine generator mainly consisting hub, controller.

whether depreciation will be allowed on item no. 6 i.e. contribution/ charges towards use of power evacuation equipment paid to electricity company for distribution of electricity.

if dep is not allowed then what will be treatment for this expense?

Replies (1)

Amir

Learner

4016 Points Posted on 02 January 2010

Dear Priti,

GENERALLY THERE ARE 2 PRINCIPLES FOR CAPITALIZATION OF AN EXPENSE:-

1) WHETHER AN EXPENSE IS TO BE CAPITALIZED OR NOT DEPENDS UPON THE FACT THAT THE BENEFITS EXPECTED FROM THAT WILL EXCEED FOR MORE THAN 1 YEAR OR NOT..

2) ALL EXPENSES INCURRED IN RELATION TO A FIXED ASSET TO MAKE IT USABLE SHALL BE CAPITALIZED...(IRRESPECTIVE OF THE FACT THAT IT'S BENEFIT CAN BE USED FOR A PERIOD OF MORE THAN ONE YEAR...) FOR EG:- INSTALLATION & COMMISSIONING CHARGES, FIRST INSURANCE IN CASE OF MOTOR VEHICLE,FIRST RECHARGE COUPON IN CASE OF A NEW MOBILE PHONE, ETC...

HENCE IF CONTRIBUTION CHARGES TOWARDS USE OF POWER EVACUATION EQUIPMENT IS NECESSARY FOR THE FUNCTIONING OF FIXED ASSET THEN IT SHALL BE CAPITALIZED...