HOW TO CALCULATE DEPRECIATION
Calculation of Depreciation (Block of assets/ WDV method)
Deprecation as per Written Down Value Method can be calculated as per the following formula:
|
Particulars |
Amount (in Rs.) |
|
Opening Written Down Value (WDV) of block |
xxx |
|
Add: Actual cost of asset acquired during the Previous Year • Put to use for 180 days or more (upto 3rd Oct)
• Put to use for less than 180 days (on or after 4th Oct)
• Acquired but not put to use
|
xxx xxx xxx |
|
Less: Money Payable (selling price of asset) |
xxx |
|
Less: Written down value of assets transferred in slump sale (compute Written down value of asset assuming this is the only asset in block) |
xxx |
|
**Written Down Value of Block for the purpose of Depreciation |
xxx |
|
Less: Depreciation Actually Allowed |
xxx |
|
Closing Written Down Value of Block |
xxx |
** Written down Value of Block of asset: –
|
Asset Acquired but not put to use. |
No Depreciation |
|
Put to used for less than 180 days |
Half rate of Depreciation |
|
Balance Assets |
Full rate of Depreciation |
NOTES:
|
1.
|
If asset is acquired during the current Previous Year and not put to use the depreciation shall not be allowed for such assets but that asset should be added to Block of assets. |
|
2.
|
Actual Sale Price of asset shall be reduced and not the Fair Market Value of asset sold. |
|
3.
|
If assessee transferred the building, then actual sales price shall be reduced and not the stamp duty value. However, if Section 50 gets attracted then Stamp Duty Value shall be considered for computation of capital gains. |
|
4.
|
Money payable means sales price or insurance compensation in respect of asset sold, discarded, demolished, or destroyed during the Previous Year and the amount of Scrap Value. |
Proviso to Section 32(1):
Depreciation is restricted to 50% if asset is put to use for less than 180 days in the year of acquisition, restriction applies only in the year of acquisition.
|
Year of Acquisition |
Year of Put to use for less than 180 days |
Depreciation Allowed |
Rate |
|
P.Y 24-25 |
P.Y 24-25 |
P.Y 24-25 |
Half Rate |
|
P.Y 24-25 |
P.Y 25-26 |
P.Y 25-26 |
Full Rate |
Depreciation in case of Amalgamation/ Demerger/ Succession
In these cases, depreciation is calculated normally and after that it shall be distributed between Amalgamating Company/ Demerged Company/ Predecessor and Amalgamated Company/ Resulting Company/ Successor in the Ratio of the number of days for which assets were used by them.
Succession means:
SALE OF ASSET/ CAPITAL GAIN IN CASE OF DEPRECIABLE ASSETS (BLOCK OF ASSETS)
|
PART A: Where a block of assets ceases to exist (All assets Transfer) |
||||
|
Sale Price of Asset |
5,20,000 |
7 |
9,30,000 |
7 |
|
Particular |
Rs. |
No. |
Rs. |
No. |
|
Opening WDV of Block |
6,00,000 |
5 |
6,00,000 |
5 |
|
Add: Actual cost of asset acquired |
2,00,000 |
2 |
2,00,000 |
2 |
|
|
8,00,000 |
7 |
8,00,000 |
7 |
|
Less: Sale Value of assets |
(5,20,000) |
7 |
(8,00,000)* |
7 |
|
Capital loss |
2,80,000 |
– |
– |
– |
|
|
Asset WDV Depreciation Capital Gain |
No No No Yes |
Asset WDV Depreciation Capital Gain |
No No No Yes |
|
Computation of CG Full Value of Consideration Less: Cost of Acquisition |
5,20,000 (8,00,000) |
|
9,30,000 (8,00,000) |
|
|
STCL/ STCG |
(2,80,000) |
|
1,30,000 |
|
* Block of Asset can be nil but can never be negative
NOTE: In case of Depreciable assets there is always Short term Capital Gain/ Short term Capital Loss.
|
PART B: Where some assets of block get transferred |
||||
|
Sale Price of Asset |
9,10,000 |
4 |
6,20,000 |
4 |
|
Particular |
Rs. |
No. |
Rs. |
No. |
|
Opening WDV of Block |
6,00,000 |
5 |
6,00,000 |
5 |
|
Add: Actual cost of asset acquired |
2,00,000 |
2 |
2,00,000 |
2 |
|
|
8,00,000 |
7 |
8,00,000 |
7 |
|
Less: Sale Value of assets |
*(8,00,000) |
4 |
(6,20,000) |
4 |
|
Capital loss |
– |
3 |
1,80,000 |
3 |
|
|
Asset WDV Depreciation Capital Gain |
Yes No No Yes |
Asset WDV Depreciation Capital Gain |
Yes Yes Yes No |
|
Computation of CG Full Value of Consideration Less: Cost of Acquisition |
9,10,000 (8,00,000) |
|
Normal Depreciation is allowed |
|
|
STCG |
1,10,000 |
|
|
|
* Block of Asset can be nil but can never be negative
NOTE: In case of Depreciable assets there is always Short term Capital Gain/ Short term Capital Loss.
Depreciation for Power Units/ Sale of Assets/ SLM method/ Individual asset system
If power units follow Straight Line Method, then they are subject to Individual Asset System Profit & loss is calculated on every sale.
Example:
Actual cost of Asset = Rs. 100
Rate of Depreciation = 10% SLM
In the 3rd Year if asset is sold for – a) Rs. 72, b) 89, c) 117, then compute the Capital Gain (if any) and Depreciation for all 3 years.
Depreciation and tax treatment will be as follows: –
|
|
A |
B |
C |
|
Purchase Price of asset |
100 |
100 |
100 |
|
Depreciation (1st year) |
(10) |
(10) |
(10) |
|
Balance at 1st year end |
90 |
90 |
90 |
|
Depreciation (2nd Year) |
(10) |
(10) |
(10) |
|
Balance at 2nd Year end |
80 |
80 |
80 |
|
Sales Value |
72 |
89 |
117 |
|
Profit/ (loss) |
(8) |
9 |
37 |
NOTES:
A: In this case Terminal Depreciation of Rs. 8 is allowed as deduction in the Profit/ loss Debit side.
B: The balancing charge is taxable u/s 41(2) under the head of income from Business & Profession.
C: Rs. 20 (Upto Cost) balancing charge is taxable u/s 41(2) under the head of income from Business & Profession and Rs. 17 (Sales Price > Cost) Short Term Capital Gain is taxable u/s 50A.
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