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Depreciation simplified

yasaswi gomes (My grammar is 💯 good I) (7290 Points)

28 October 2021

For example, A machine costs 100000, residual value 5000 and life of 30 years. According to the company 9.5% is the rate and 15% in Income tax Act.

Depreciation under companies Act	9500
Depreciation under Income tax Act	15000
Difference	5500
Deferred tax liability	1716

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 28 October 2021

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item should be depreciated separately. Where, during any financial year, any addition has been made to any asset, the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition.

Dep for additional unit= Pro-rata depreciation Rate= {1-(Scrap value of asset/Cost of asset)^(1/remaining useful life of asset)} x [Number of days from date of asset purchased till financial year-end/365] x 100 (WDV Method)

The above is for calculating dep as per companies act.

As per Tax act, depreciation is calculated at full rate given if the asset is used for > 180 days or half rate of the given rate if the usage is <180 days.

Finally, you can calculate your Deferred Tax liability.