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Insurance Claim on Depreciable Assets

sanyam jain (Articleship) (65 Points)

14 August 2018

Insurance Claim received for depreciable assets destroyed in fire. Insurance Company granted claim in form of New Assets purchased.
Now, FMV would not be reduced from WDV.
Whether, those new assets would be capitalised?

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5 Replies

Gauthami (Student CA Final ) (428 Points)
Replied 14 August 2018

yes it need to be capitalized...then only u can claim depreciation of the asset received in subsequent years...

rama krishnan (12234 Points)
Replied 15 August 2018

difference between the wdv and the cost of the new asset need to be declared as stcg

sanyam jain (Articleship) (65 Points)
Replied 15 August 2018

@ Gauthami.....
we spent no amount for new assets..all are granted by insurance company, then why to capitalised?

Gauthami (Student CA Final ) (428 Points)
Replied 15 August 2018

In our act, it is specified that when compensation is received in form of an asset(new) for destruction of asset being used for business purpose then excess of FMV over WDV of asset should be treated as STCG. But no where the treatment of new asset n whether depreciation can be claimed on new assets is mentioned. Moreover in this case they are not receiving any income but receiving a source for generating income in subsequent years so that continuity of business by assessee shall be intact.
so in my view treatment for new asset must've in following way. For example WDV of asset destructed is 40L and compensation received in form of new asset which has FMV of 50L. Then 10L shall be assessable amount and should be reduced from cost of new asset. The balance amount of 40L should be capitalized and depreciation should be claimed for subsequent years.