Depreciation policy

AS 1096 views 16 replies

Pankaj

SAP FICO Consultant

82 Points Joined September 2011

Hi All Experts,

I am working for one Automobile Industry UK.

I have question about depreciation policy : Whether vehicle created in plant and placed at Warehouse for some time. Will it be liable for depreciation ?

Eg :

Vehicle created on : 1st Jan 2013
Vehicle stored in warehouse from 1st Jan 2013 to 30th June 2013 ( around 6 months. )

So as per accounting principles will depreciation applicable for these kind of stored vehicles ?

Kindly provide experts view.

Regards,

Pankaj Bhalerao.
SAP FICO Consultant.

Replies (16)

CA. Ankit Bhansali

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120 Points Joined December 2012

Depreciation is charged to compensate wear and tear of vehicle and also for efflux of time..

even passive use also eligible for depreciation...

so you have to charge depreciation

CA Ashish Pathak

Employed at Cipla Ltd.

2779 Points Joined April 2011

I beg to differ with the above mentioned view. As per the Accounting Standard-6 on Depreciation Accounting, Depreciable Assets does not include such assets which are held for the purpose of sale in the ordinary course of business. In this case, the vehicle stored in warehouse is for the purpose of sale. So depreciation is not applicable on this vehicle as it not a depreciable asset.

Regards.

ASHISH PATHAK

Abhisek Rungta

PRACTISING CHARTERED ACCOUNTANT

234 Points Joined September 2009

As the asset is ready for use and for passage of time , you can claim depreciation.

CA Ashish Pathak

Employed at Cipla Ltd.

2779 Points Joined April 2011

The AS-6 defines "DEPRECIABLE ASSETS" as assets which (i) are expected to be used during more than one accounting period, (ii) have limited useful life, and (iii) are held by the enterprise for use in the production, or supply of goods and services for rental to others, or for administrative purposes and not for the purpose of sale in the ordinary course of business.

CA Ashish Pathak

Employed at Cipla Ltd.

2779 Points Joined April 2011

@ Ankit, Na. why depreciation can be claimed. This vehicle is meant for sale and so its not a depreciable asset only. So the question of depreciation doesnt arise. How can a business entity claim depreciation on its "stocks" which is meant for sale?

CA Gaurav Ajit Potdar

Chartered Accountant

846 Points Joined June 2010

Agree with Ashish Pathak, Depreciation can be claimed only on Companies Fixed Assets not on Stock., in this case vehicles are part of stock.

Ramarao Gullipalli

Dy.Manager-Finance & Accounts

99 Points Joined December 2010

"Agree with Ashish Pathak"

Pankaj

SAP FICO Consultant

82 Points Joined September 2011

Dear Ashish / All Experts,

Is this policy followed accross the globe ? or something based on Local GAAP ?

The reason to ask is I am working on UK based client.

@ Ashish : Appreciating your indepth knowledge and clear concepts.

All the best to you.

Regards,

Pankaj Bhalerao.

Guest

AGREE WITH ASHISH...........

SINCE STOCK IS FALLING UNDER CURRENT ASSETS ............ AND CURRENT ASSETS IS NOT ELIGIBLE FOR DEPRECIATION

Mahesh Ghonge

Assistant Manager-Audit

24 Points Joined July 2012

Agree wth Ashish,

You can not claim depreciation on your stock, since you are in automobile industry vehcle lying at ware house for sale is your stock.

CA Ashish Pathak

Employed at Cipla Ltd.

2779 Points Joined April 2011

Thanks everyone for appreciating my answer. @ Pankaj, Even as per the IAS which is applicable to UK based entities there is same treatment for this.

CA. Ankit Bhansali

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120 Points Joined December 2012

i would really like to know wether vehicle was for use as an asset or purpose was to sale. may be i m missing something

Pankaj

SAP FICO Consultant

82 Points Joined September 2011

Hi All,

@ Ankit : It mansufactured for sale, but until gets customer treated as stock in warehouse. Is the case.

Regards,

Pankaj Bhalerao.

Guest

HI Pankaj,

I am very happy that you have raised an interesting point regarding AS 6. I am reproducing the same words as mentioned in the AS 6

Depreciable assets are assets which

(i) are expected to be used during more than one accounting

period; and

(ii) have a limited useful life; and

(iii) are held by an enterprise for use in the production or supply of

goods and services, for rental to others, or for administrative

purposes and not for the purpose of sale in the ordinary course

of business.

As per (i) Since your company is an automobile industry, cars manufactured are inventory for them as per AS2, the manufactured car is not expected to be used, its going to be sold. - So the car does not come under point (i)

As per (ii) The car has limited useful life - So the car comes under point (ii)

As per (iii) The car is held for the purpose of sale in the ordinary course of business - So the car does not come under point (i)

To be called an Asset as a Depreciable Asset, all the 3 conditions stipulated as per AS 6. Since 2 conditions were not satisfied, the car is not a depreciable asset and no depreciation is required.