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Profit/loss on sale of fixed assets

Anik Sen (Article Assisstant) (156 Points)

09 December 2014

IF A COMPANY SELLS ITS FIXED ASSETS AT A PROFIT ,THEN WHAT WOULD BE ITS ACCOUNTING TREATMENT AND HOW THE PROFIT WOULD BE TREATED IN INCOME TAX,

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11 Replies

V P Narasimhan (Accounts Manager) (791 Points)
Replied 10 December 2014

We can open an a/c viz., Profit/Loss on Sales of Asset or Fixed Asset.

Profit can be treated as income & in vice versa.

CA Kanj Goel (Division Manager) (372 Points)
Replied 10 December 2014

Dear Ankit,

For Depreciatiable Assets:

As far as accounting is concerned you have to calculate the profit/loss on sale of fixed assets after charging the depreciation till the date of sale of fixed assets.

In Income Tax you have to deduct the sale consideration from the block of assets as mentioned in the Section 32 of the Income Tax Act, 1961 and charge depreciation on the remaining value of the block.

If sale consideration exceed the entire value of the block then the difference between the sale consideration and the actual cost of acquisition of bleck is taxable in the head capital gain as short term capital gain. The difference between actual cost and WDV is taxable as PGBP income.

e.g

COA 100

WDV 50

SALE CONSIDERATION 110

PGBP INCOME Rs. 50

STCG Rs. 10.

2 Like

*RENU SINGH * (✩ §m!ℓ!ñġ €ม€§ fℓม!ñġ ђ♪gђ✩ ) (21627 Points)
Replied 10 December 2014

i could have almost answered like VP and omitted the word Income tax from your question ...

a big reading mistake ! but whatever CA kanj goel said is correct and no rectification needed.

actual cost would be calculated as per section 43(1) and then capital asset chargreable for the excess amount.

1 Like

Arif Ali (Apt Co Advisory) (1230 Points)
Replied 10 December 2014

Here, accounting treatment and tax treatment are diffferent.

In the accounting treatment, e.g.purchased cost of depreciable asset is 2 lac. and depreciation on that till date is 1.5 lac. and now written down value is 0.50 lac. and you have sold it for 2.1 lac. then accounting treatment will be :-

Bank A/c Dr.. 2.1 lac

To profit on sale of asset. 1.5 lac

To Capital Reserve 0.1 lac

To Asset 0.50 lac

and in the tax it will depend on block of asset. If block of asset is go to nil or if sale consideration more than written down value on selling of depreciable asset, then STCG will be arised u/s 50. if there block of asset not nil or sale consideration is less than, then no tax. only depreciation amount will be reduced on account of written down vale reduced.

1 Like

CA Kanj Goel (Division Manager) (372 Points)
Replied 10 December 2014

Dear Arif,

I disagree with you about the accounting traetment as the entire profit is to be credited to profit and loss account and no amount will be transferred to capital reserve.

For Income Tax you can refer to the example quoted by me in my earlier post.

2 Like

sunil bhatia (senior partner) (21 Points)
Replied 10 December 2014

I agree fully with ca kanj goel.

Neeraj Sharma (Accountant) (285 Points)
Replied 12 December 2014

as per AS 10 profit / loss on sale of fixed asset will be transfer to profit & loss account. hence capital reserve a/c will not be credited.

GIRI DHAR (Student) (2 Points)
Replied 06 June 2018

Dear Sir,

If block of asset is go to nil or if sale consideration more than written down value on selling of depreciable asset, then STCG will be arised u/s 50. if there block of asset not nil or sale consideration is less than, then no tax. only depreciation amount will be reduced on account of written down vale reduced. Is there any chance to arise the STCG when the block of asset not nil or sale consideration is less than block of assets

pooja jobanputra (Student CA Final ) (23 Points)
Replied 14 August 2018

pls correct me if I am wrong AND plz give your suggetion if any_

Assesse has sold factory building, as per sec 50 if any depreciable assets sold then Capital gain is short term capital gain.

but if cost of purchase is more than WDV......

Cost of purchase	Sale Consideration	WDV	Total gain
33,63,750	50,00,000	22,09,396	27,90,604
(A)	(B)	(C)	(D)

	27,90,604	(D)
LTCG	16,36,250	(B)-(A)	(Difference between actual cost and sale consideration)
STCG	11,54,354	(B)-(C )	to the extend of depreciation claimed (but the depn till 31 march 2017 is RS. 8,21,324

1) how much amount I shall take for STCG-

1) 11,54,354 or 2) 8,21,324

2) if we consider 8,21,324 as STCG thn what shall be the treatment of difference amount between (11,54,354-8,21,324 = 3,33,030)

plz suggets its little urgent. many thanks in advance..

CA. Umesh Khunt (Chartered Accountant) (28 Points)
Replied 09 February 2019

Dear Pooja,

Presuming block of the asset is go to nil, STCG will be 2790604 (5000000-2209396) as per section 50. Cost of purchase is always more the wdv. Cost of purchase 3363750 has no any relevance here.