Depreciation query
there's a sentence in my T N Manoharan dt book which says , Students may note that if the assessee follows the method of recognising only interest and not the entire lease rent, then the assessee cannot claim depreciation in respect of the assets leased out. in such cases, only the lessee can avail the benefit of depreciation.
please help me understand the concept of depreciation in case of lease.
Replies (1)
The sentence you refer to clarifies the accounting for depreciation of an asset which is leased/hired out by its owner. Frequently the difference between a finance lease( HP) and an operating lease is very thin especially for assets like vehicles etc. In such a case a test which can decide who should claim depreciation ( i.e who is the owner) is clarified by the above sentence. If the financier accounts for interest income, then the owner is the person who has availed the finance. If the financier accounts for lease rent (i.e the entire amount of mnthly instalment) then he can claim depreciation
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