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Fixed assets rs. 5000

Shivani (Learner) (1881 Points)

07 September 2013

Hi Members

Lot of time I hear that if fixed asset is upto Rs. 5000 then it should be treated as an expense and not fixed asset.

Is this true?

Also when we maintain accounts at what rate do we charge depreciation on fixed assets and from where do we get these rates.

thanks

shivani

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14 Replies

GaUrAv (C.A. and MOS) (574 Points)
Replied 07 September 2013

Hi Shivani, Yes this is true. And the depreciation rates are provided in schedule IV of companies act and section 32 of income tax act.

Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 07 September 2013

In Significant Accounting Policies

Fixed Assets:

Depreciation is calculated on a pro-rata basis only in respect of additions to plant and machinery having a cost in excess of Rs. 5000.

Assets costing upto Rs. 5000 are fully depreciated in the year of purchase. No depreciation is provided on

assets sold, discarded, etc. during the year.

Shivani (Learner) (1881 Points)
Replied 08 September 2013

but while maintaining accounts , do we follow company law depreciation rates or income tax depreciation rates?

what if the the entity whose accounts are maintained is not a company?

which rates to follow ! !

shivani

Shivani (Learner) (1881 Points)
Replied 10 September 2013

but while maintaining accounts , do we follow company law depreciation rates or income tax depreciation rates?

what if the the entity whose accounts are maintained is not a company?

which rates to follow ! !

shivani

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 18 September 2013

It all depends under which law you are maintaining accounts.

Accounts upon which Company Law attract have to follow depreciation as specified under company Act but for tax purpose you need to make adjustments to arrive at depreciation as per income tax Act.

Accounts upon which Company Law doesn't attract can use depreciation as directed by Income Tax Act to prevent themselves from Depreciation adjustments.

Shivani (Learner) (1881 Points)
Replied 20 September 2013

samrendra sir

if i buy one mobile phone costing 4500 and then later one another mobile phone costing 4000, then will be provide depreciation of 100% for both mobile phones at the end of the year.

Or will be now show 8500 as asset as combined value of both has exceeded 5000

thanks

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 22 September 2013

Limit of Rs. 5,000 is for individual Assets therefore in your case it should be depreciated at 100%

BUT if multiple assets are purchased in one lot to constitute as one than cost of group will be considered instead of considering single asset.

Example:

Set of Furniture are purchase in Restaurant including Table, Chair, Flower Base, cushions worth Rs. 100,000 but individually all Table, Chair, Flower Base, Cushions cost less than Rs. 5,000 in this case 100% depreciation will not be charged as these all goods considered as single good.

CA. Mayur (Service) (147 Points)
Replied 23 September 2013

Just adding to above discussion, that in case where aggregate of individual plant & machinery costing equal to or less than Rs. 5000 contributes more than 10% of total Plant and machinery cost than it will be depreciated at rates specified in schedule XIV part II.

1 Like

Janaki ramam Vobbilisetty (Accounts officer) (25 Points)
Replied 11 November 2013

If a fixed asset purchased by a Indivdual Professional is less than Rs.5000/- can he claim 100% depreciation ? I

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 17 November 2013

Dear Janaki, Yes Individuals can also claim depreciation at 100%

bharat (student) (47 Points)
Replied 30 April 2014

Can i charge 100 percent depreciation or expense out asset below 5000 under income tax act? kindly quote section to back up your answer...thanks

Shivani (Learner) (1881 Points)
Replied 05 May 2014

under new Companies Act 2013, there is no Rs. 5000 requirement.

so whats now ! !

put every little thing under fixed asset.

Help Help Help

CA. Roopali Kadam (Jobs on assignment basis.) (1453 Points)
Replied 05 May 2014

As per Guidance Note on Accounting for Depreciation for Companies

Depreciation on low value items

Para 26.

Prior to the enforcement of the Companies (Amendment) Act, 1988, many companies used to follow the practice of writing off low value items in the year of acquisition, since such a write off was permitted under the Income-tax Act.
The limit for such a write off was Rs. 5,000/-. Schedule XIV is, however, silent on this aspect.
The Committee is of the view that the concept of materiality should be kept in mind while deciding the amounts to be written off in this regard.
- For instance, in small companies, the total write off on this basis may be a substantial figure, it may not, therefore, be proper to charge 100% depreciation on low value items.
- However, in large companies, where the value of assets is very high, it may be proper to charge 100% depreciation on low value items keeping in view the concept of materiality.
The Committee recommends that the accounting policy followed by the company in this regard should be disclosed appropriately in the accounts.

Mahesh Ranjan Das (Nothing Yet) (26 Points)
Replied 14 March 2016

Hello Shivani,

It is in favour of business interest to adopt depreciation rates as per Companies act since the rates are generally higher as per Income tax act. The purpose of the higher rates as per Income tax act is higher revenue generation . But in financial statements, higher depreciation rates would ultimately minimize profits (especially in electricity and crude oil processing cos). Furthermore the asset mantainance policies of the cos don't agree with higher depreciation rates since they claim repairs and mantainance as deductions . By following depreciation rates as per Companies act, the business entity protects both the stakeholders and govt. interests.