DEPRECIATION

Depreciation as per law of lexicon is defined as positive decline in the real value of a tangible asset because of consumption, wear and tear or obsolescence. The concept of depreciation is widely used for the purpose of writing off the cost of an asset against profit over an extended period (its depreciable life), irrespective of the real value of the asset. Depreciation is charged against income or the profit and loss account, and there are different methods of calculating it like straight line method or written down value method. The Income-tax Act save and except for undertaking engaged in generation and/or distribution of power the method of computing the depreciation is WDV method.

DEPRECIATIONBLOCK OF ASSET [SECTION 2(11)]

Prior to the 1986, the Income-tax Act required the calculation of depreciation in respect of each capital asset separately. Due to differences in depreciation rates depending on the date of purchase, the type of asset, the intensity of use etc., computation of depreciation allowance involved a detailed exercise on the part of the assessee and AO. Moreover, the system of granting the terminal allowance or taxing the balancing charge at the time an asset was sold, demolished, discarded, etc., necessitated the maintenance of records of depreciation already allowed in respect of each asset.

The amendments sought to simplify the system to a great extent by introducing the concept of "block of assets". Sec. 2(11) defines the term block of assets as "a group of assets falling within a class of assets, being building, machinery, plant & furniture, in respect of which the same percentage of depreciation is prescribed."

DEPRECIATIONWRITTEN DOWN VALUE [SECTION 43(6)]

WDV under the Income-tax Act, means1.where the asset is acquired in the previous year the actual cost of asset shall be treated as WDV

2.where the asset is acquired in earlier year WDV shall be equal to the actual cost incurred less depreciation allowed under The Income Tax Act.

DEPRECIATIONIn case of Block of assets WDV is computed as under:

Sr. No. Particulars Amount Amount

1   

In case of assets acquired prior to 31.03.1988

a. The aggregate WDV of all assets falling within the same block in the beginning of PY relating to AY commencing from 01.04.1988

XXX  

b. Add : Assets acquired during the previous year XXX

c. Lees: Moneys payable (including the scrap value) on assets sold, discarded or demolished or destroyed during the previous year to the extent it does not exceed (a+b)

(XXX) XXX

2    

In case of slum sale

a. Actual cost of assets falling in the same block XXX

b. Less : Depreciation actually allowed prior A.Y.s 1988-1989 (XXX)

c. Less : Depreciation allowable after 1.4.1988 However deduction under b & c shall not exceed the total WDV

(XXX) XXX

DEPRECIATION

Note : In case of PY relevant to AY commencing on 01.04.1989 the WDV would be the amount of WDV of block of asset in immediately preceding PY as reduced by depreciation actually allowed in respect of said preceding PY and as adjusted by clauses b & c of 1 above.

DEPRECIATIONRATES OF DEPRECIATION (%)Buildings:

(a) Buildings which are used mainly for residential purposes except hotels and Boarding House 5

(b) Buildings which are not used mainly for residential purposes and other than mentioned in a & c 10

(c) Buildings acquired on or after 1-9-2002 for installing P & M forming part of water supply project or water treatment system and put to use for the purpose of providing infrastructure facilities u/s. 80- IA(4)(i)

100

(d) Purely temporary erections such as wooden structures 100

Note• "Buildings" include roads, bridges, culverts, wells and tube wells.• A building shall be deemed to be a building used mainly for residential purposes, if the built up floor area thereof used for residential purposes is not less than sixty-six and two-thirds per cent of its total built-up floor area and shall include any such buildings in the factory premises.• Water treatment system includes system for desalination, demineralisation and purification of water.

Furniture and fittings including electrical fittings 10

• Electrical fittings include electrical wiring, switches, sockets, other fitting and fans, etc

Machinery and plant:

Plant has been held to include :

• movable partitions

• sanitary & pipeline fitting

DEPRECIATION  • ceiling and pedestal fans  • wells  • hospital  However, w.e.f. A.Y. 2004-05, it shall not include buildings, furniture and fittings.

  1) Machinery & plant other than those covered by sub-items 2, 3 and 8 below 15

  • Machinery and plant includes pipes needed for delivery from the source of supply of raw water to the plant and from the plant to the storage facility.

  2) Motor-cars (other than those used in business of running them on hire) acquired or put to use on or after 1st April, 1990

15

  3) (i) Aeroplane-Aeroengines 40  (ii) Motor buses, Motor lorries and Motor used in a business of running them on hire 30

  (iii) Commercial vehicle acquired on or after 1-10-1998 but before 1-4-1999 and is put to use before 1-4-1999 for the purposes of business or profession.

40

  (iv) New commercial vehicle acquired on or after 1-10-1998 but before 1-4-1999 and is put to use before 1-4-1999 in replacement of condemned vehicle of over 15 years of age for the purpose of business or profession.

60

  (v) New commercial vehicle acquired on or after 1-4-1999 but before 1-4-2000 in replacement of condemned vehicle of over 15 years of age and is put to use before 1-4-2000 for the purpose of business or profession.

60

DEPRECIATION  (vi) New commercial vehicles acquired on or after 1-4-2001 but before 1-4-2002

and is put to use before 1-4-2002 for the purpose of business or profession.50

  (vii) New Commercial vehicle acquired on or after 1-1-2009 but before 1-10-2009 and put to use before 1-10-2009 for the purpose of business or profession

50

  • "Commercial vehicle" means — heavy goods vehicle, heavy passenger motor vehicle, light motor vehicle, medium goods vehicle, medium passenger motor vehicle.

  • It does not include "maxi-cab", "motor-cab", "tractor" and "road-roller".

  (viii) Moulds used in rubber and plastic goods factories 30  (ix) Air pollution control equipments 100  (x) Water pollution control equipments 100  (xi) Solid waste control equipments 100  (xii) P & M used in semi-conductor industry 30  (xiii) Life saving medical equipments 40  4) Containers made of glass or plastic used as refills 50  5) Computers (including computer software) 60  • "Computer Software" means any computer programme recorded on any

disc, tape, perforated media or other information storage device.

  6) Machinery and plants used in weaving, processing and garment sector of textile industry purchased under TUFS on or after 1-4-2001 but before 1-4-2004 and is put to use before 1-4-2004

50

  7) Machinery and plant, acquired and installed on or after the 1-9-2002 in a water supply project or a water treatment system and which is put to use for the purpose of business of providing infrastructure facility under 80-ia(4)(i)

100

  8) For other items of P & M refer to Rule 5 App. 1 100/80/60

  9) (i) Books owned by assessees carrying on a profession  — Annual publications 100  — Other books 60  (ii) Books owned by assessees carrying on business in running lending libraries 100

(IV) Ships 20

  • "Speed boat" means a motor boat driven by a high speed internal combustion engine capable of propelling the boat at a speed exceeding 24 kilometers per hour in still water and so designed that when running at a speed, it will plane, i.e., its bow will rise from the water.

(V) Intangible Assets 25  Know-how patents, copyrights, trademarks, licenses, franchises or any other

business or commercial rights of similar nature acquired on or after 1-4-1998.

DEPRECIATION

Computation of Dep.

WDV of Plant and Machinery on 1-4-2008 500000

Additions to machines on 15-11-2008 100000

600000

Less: Sale consideration of machinery

sold during the year 100000

Machine Damaged by fire:

Amount recd. from Ins. Co. 15000

Amount recd. from Sale of Scrap 10000 125000

WDV of P & m for the A.Y. 2009-10 475000

Less: Dep. @ 15% on Rs. 375000 56250

and 7.5% on Rs. 100000 7500

Additional Dep. on Rs. 100000

@ 10% 10000 73750

Balance Rs. 401250

Q. Shri Bhagat Singh is the owner of a factory. The following particulars are furnished for its depreciation claim for the year ended 31-3-2012:

Buildings: Rs. RateWDV of Factory Building 80000 10%New additions on 1-9-2011 in above 40000WDV of Office Building 50000 10%

Machinery:WDV of Machinery 100000 15%A new machine purchased and installed in production department on 1-4-2011 60000An old machine purchased and installed inproduction department on 1-11-2011 50000Sold an old machine on 1-11-2011 for 40000

Furniture:WDV of Furniture 15000 10%New Additions to furniture on 1-12-2011 5000

Work out the depreciation for the A.Y. 2012-13

ANS.Computation of Dep.

For the Assessment Year 2012-13

I Block Rs.Buildings: Factory & Office Building10% on Rs. 80000 + 40000 + 50000 = Rs.170000 17000

II BlockMachinery:Rs. 100000 + 60000 + 50000= Rs. 210000 – 40000 = Rs. 170000Dep. on Rs. 120000 @ 15% and on Rs. 50000 @ 7.5% 21750Additional Dep. on new machine @ 20% 12000

III BlockFurniture:Rs. 15000 + 5000 = Rs. 20000Dep. On Rs. 15000 @ 10% and on Rs. 5000 @ 5 % 1750

Total Dep. Rs. 52500

Q. The particulars of assets of M/s Ram Prakash & Co. for the previous year from 1st April, 2011 to 31st March, 2012 are as under :

i.A motor car, costing Rs. 40000 was purchased on 10th Jan, 2012. It is used partly for private purposes also 60% of use during the financial year 2011-12 related to business.ii.Plant and machinery WDV on 1st April, 2011 Rs. 375000. Two new machine were installed on 1st Nov, 2011 in production department costing Rs. 100000 and Rs. 20000 respectively. An old machine was sold during the previous year for Rs. 300000.

Calculate the amount of dep. Allowable for the A.Y. year 2012-13

ANS.Computation of Dep.

Car Rs. 40000 : Dep. @ 7.5% 3000

Less: 40% for private use 1200 1800

Plant & Machinery

WDV on 1-4-2011 375000

Add: Cost of New Machine 120000

495000

Less: Sale of old machine 300000

195000

Dep. On Rs. 75000 @ 15% 11250

Dep. On Rs. 120000 @ 7.5% 9000

Additional Dep. On Rs. 120000 @ 10 % 12000 32250

Total Rs. 34050

Q. The WDV of two plant and machinery A and B 1.4.2010 is Rs. 1000000. Two new machinery C and D have been acquired for manufacture of an article in Dec. 2010 and May 2011 respectively at a cost of Rs. 500000 each.

Compute the amount of dep. For the assessment year 2011-12 and 2012-13.

The assessee is not entitled to additional dep. for the A.Y. 2011-12.

ANS. Computation of Dep.A.Y. 2011-12

WDV of P & M on 1.4.2010 1000000

Add: Machine purchased in Dec. 2010 500000

WDV for A.Y 2008-09 1500000

Less: Dep. on Rs. 1000000 @ 15% 150000

and on Rs. 500000 @ 7.5% 37500 187500

Balance 1312500

A.Y. 2012-13

WDV of P & M on 1.4.2011 1312500

Add: Machine purchased in May 2011 500000

WDV for A.Y. 2012-13 1812500

Les: Dep. @15% 271875

Additional Dep. @20%

on Rs. 500000 100000 371875

WDV on 1.4.2012 Rs. 1440625

Q. On 1st April, 2011, the WDV of a block of assets

comprising ten machines in production department (rate

of dep. 15%) is Rs. 1250000. A new machine falling within

that block is acquired on 5th Dec. 2011 for Rs. 200000.

On 24th Jan, 2012 all ten machines were sold for Rs.

50000 leaving only the newly acquired machine in the

block. Determine the amount of dep.

ANS. Computation of Dep.

WDV of machines on 1.4.2011 1250000

Add: Machine acquired & put to use on 15.12.2011 200000

1450000

Less: Selling Price of ten machines 50000

1400000

Dep. On Rs. 1200000 @ 15% 180000

and on Rs. 200000 @ 7.5% 15000

Additional Dep. @ 10% on Rs. 200000 20000 215000

WDV on 1.4.2012 Rs. 1185000

Q. Z Ltd. furnishes the following information:Block I: Plant and Machinery(consisting of 3 plants), rate of dep. 15%. WDV on April1, 2011: Rs. 250000.Block II: Buildings(two buildings), rate of dep. 10%. WDV on April 1, 2011 Rs. 600000.Acquired on June 2, 2011, 2 plants for Rs. 200000.Sold on Nov. 30, 2011 all the five plants for Rs. 450000.Acquired on Dec. 15, 2011, two plants for Rs. 150000 for its production department.Admissible rate of dep. In relation to all acquired plants is 15%.Compute the amount of admissible dep. Claim of M/s Z Ltd. for the assessment year 2012-13.

ANS. Computation of Dep.

Block I: Plant:

1.4.2011 WDV 250000

2.6.2011 Two plants 200000

15.12.2011 Two plants 150000

600000

Less: Selling Price 450000

Rs. 150000

On WDV for P.Y. 2011-12 @ 7.5% 11250

Additional Dep. On Rs. 150000 @ 10% 15000 (a) 26250

Block II : Buildings:

1.4.2011 WDV 600000

Dep. @ 10% (b) 60000

Rs. 540000

Total Dep. a + b Rs. 86250

Q. Mr. N purchased a machine on 31.11.2010 for

Rs200000 and spent Rs. 24000 on its installation. It was

used for his own business till 1.5.2011 on which date he

sold it for Rs. 120000. He repurchased it on 1.10.2011 for

Rs. 320000. determine the actual cost and dep.

Admissible for the year ending 31.3.2012. Rate of Dep. Is

15%.

ANS. Computation of Dep.

Actual Cost on 30.11.2010 200000

Add: Installation charges 24000

224000

Less: Dep. For P.Y. 2010-11 @ 7.5% 16800

Additional Dep. @ 10% 22400

WDV on 1.4.2011 Rs. 184800

Now machine was sold on 1.5.2011 for Rs. 120000 and reacquired on

1.10.2011 for Rs. 320000.

Hence, the cost of acquisition amount paid Rs. 320000 or

WDV Rs. 184800 whichever is less.

Cost 184800

Less: Dep. @15% 27720

WDV on 1.4.2012 Rs. 157080

Q. Compute the dep. For the A.Y. 2012-13 from the following

details:

(a)WDV of assets on 1.4.2011 is as follows:

i. Motor Cars: A 60000

B

50000

ii. Motor Taxis: C 80000

D

150000

iii. Motor Buses: E 100000

F

90000

•During the P.Y. 2011-12, motor car A is sold for Rs.70000 and

motor bus F for Rs. 60000.

•One motor taxi G has been purchased on 15.8.2011 for Rs.

120000 and motor car H for Rs. 110000 on 15.8.2011

•The rate of dep. for motor cars is 15% and for motor taxis and

bus is 30%.

ANS. Computation of Dep.Block I: Motor Cars @ 15%

1.4.2011 WDV (A+B) 110000Less: Sold car (A) 70000

40000Add: Motor Car(H) purchased on 15.10.2011 110000

150000

Dep. on Rs.40000 @ 15% 6000Dep. on Rs. 110000 @ 7.5% 8250

(a) 14250Block II: Motor Taxis and Buses @ 30%

1.4.2011 WDV(C+D+E+F) 420000Less: Motor bus F sold 60000

360000Add: Motor Taxi G purchased on 15.8.2011 120000

480000

Dep. On Rs. 480000 @ 30% (b) 144000

Total Dep. Allowable (a + b) Rs. 158250

Q. Mr. X submits the following details about his assets:

Dep. Rate (%) WDV on 1.4.2011

Machine I 25 1,50,000

Furniture 15 50,000

Machine II 25 50,000

Machine III 50 40,000

Computer(one) 60 40,000

Machine II (dep. Rate 25%) was sold for Rs. 62,000 in May 2011. A

machine (dep. rate 25%) and a computer was brought for Rs. 80,000 and

Rs. 20,000 respectively in Nov., 2011. Compute dep. allowance for the

previous year 2011-12. The assessee is not entitled to additional

depreciation on machines.

ANS. Computation of Dep.Block I : Dep. @ 25%1.4.2008 WDV : Machine I 1,50,000

Machine II 50,000Nov., 2011 Machine purchased 80,000

2,80,000Less: Machine Sold 62,000

Rs. 2,18,000Dep. On Rs. 1,38,000 @ 25% 34,500Dep. On Rs. 80,000 @ 12.5% 10,000 44,500

Block II : Dep. @ 15%101.4.2011 WDV of Furniture 50,000 7,500

Block III : Dep. @ 50%1.4.2011 WDV of machine 40,000 20,000

Block IV : Dep. @ 60%1.4.2011 WDV of Computer 40,000Nov., 2011 Computer purchased 20,000

60,000Dep. on Rs. 40,000 @ 60% 24,000Dep. on Rs. 20,000 @ 30% 6,000 30,000

Dep. Allowance Rs. 1,02,000

Q. Mr. Krishna has the following machines in his production dept.

Compute Dep.:

(a)Machines as on 1.4.2010 Rs.

(i) Machine A 50000

(ii) Machine B 50000

(iii) Machine C 10000

(iv) Machine D 25000

(b) Machine X purchased on 1.5.2011 25000

(c) Machine Y purchased on 1.12.2011 50000

(d)Machine sold

(i) Machine A and C on 1.6.2011 80000

(ii) Machine C and D on 1.11.2011 59750

(e) Special training expenses for Machine Y 5000

ANS. Computation of Dep.WDV of machines on 1.4.2010 1,35,000

Dep. @ 15% 20,250

WDV of machines on 1.4.2011 1,14,750

Add: New machine purchased X on 1.5.2011 25,000

New machine purchased Y on 1.12.2011 50,000

Training Expenses for machine Y 5,000

1,94,750

Less: Machines sold 1,39,750

WDV on 31.3.2012 55,000

Less: Dep. @ 7.5% 4,125

Additional Dep. @ 10% on 55,000 5,500 9,625

WDV on 1.4.2012 Rs. 45,375