Depreciation simplified

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
Replies (2)
Quick Summary
This discussion simplifies depreciation by comparing calculations under the Companies Act and the Income Tax Act. It provides an example of a machine's depreciation, highlighting the differences in rates and the resulting deferred tax liability. The explanation also covers rules for asset additions and the formula for calculating depreciation using the Written Down Value (WDV) method.

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.

 

Thanks for the information

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