DEPRECIATIONDepreciation as per law of lexicon is defined as positive decline in thereal value of a tangible asset because of consumption, wear and tearor obsolescence. The concept of depreciation is widely used for thepurpose of writing off the cost of an asset against profit over anextended period (its depreciable life), irrespective of the real value ofthe asset. Depreciation is charged against income or the profit andloss account, and there are different methods of calculating it likestraight line method or written down value method. The Income-taxAct save and except for undertaking engaged in generation and/ordistribution of power the method of computing the depreciation isWDV method.
DEPRECIATIONBLOCK OF ASSET [SECTION 2(11)]Prior to the 1986, the Income-tax Act required the calculation ofdepreciation in respect of each capital asset separately. Due to differences indepreciation rates depending on the date of purchase, the type of asset, theintensity of use etc., computation of depreciation allowance involved adetailed exercise on the part of the assessee and AO. Moreover, the systemof granting the terminal allowance or taxing the balancing charge at thetime an asset was sold, demolished, discarded, etc., necessitated themaintenance of records of depreciation already allowed in respect of eachasset.The amendments sought to simplify the system to a great extent by introducingthe 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 isprescribed."
DEPRECIATION WRITTEN 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 assetshall be treated as WDV2.where the asset is acquired in earlier year WDV shall be equal to theactual cost incurred less depreciation allowed under The Income Tax Act.
DEPRECIATION In case of Block of assets WDV is computed as under:Sr. No. Particulars Amount Amount1 In case of assets acquired prior to 31.03.1988 a. The aggregate WDV of all assets falling within the same block in XXX the beginning of PY relating to AY commencing from 01.04.1988 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 (XXX) XXX the extent it does not exceed (a+b)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 (XXX) XXX under b & c shall not exceed the total WDV
DEPRECIATIONNote : In case of PY relevant to AY commencing on 01.04.1989 theWDV would be the amount of WDV of block of asset in immediatelypreceding PY as reduced by depreciation actually allowed in respectof 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 100system and put to use for the purpose of providing infrastructure facilities u/s. 80- IA(4)(i)(d) Purely temporary erections such as wooden structures 100Note• "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 forresidential purposes is not less than sixty-six and two-thirds per cent of its total built-up floor area and shall include anysuch 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, etcMachinery and plant:Plant has been held to include :• movable partitions• sanitary & pipeline fitting
DEPRECIATION• ceiling and pedestal fans• wells• hospitalHowever, 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 rawwaterto 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 15to use onor after 1st April, 19903) (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 40use before 1-4-1999 for the purposes of business or profession.(iv) New commercial vehicle acquired on or after 1-10-1998 but before 1-4-1999 and is put 60to use before 1-4-1999 in replacement of condemned vehicle of over 15 years of age for thepurpose of business or profession.(v) New commercial vehicle acquired on or after 1-4-1999 but before 1-4-2000 in 60replacement of condemned vehicle of over 15 years of age and is put to use before 1-4-2000for the purpose of business or profession.
DEPRECIATION(vi) New commercial vehicles acquired on or after 1-4-2001 but before 1-4-2002 50and is put to use before 1-4-2002 for the purpose of business or profession.(vii) New Commercial vehicle acquired on or after 1-1-2009 but before 1-10- 502009 and put to use before 1-10-2009 for the purpose of business or profession• "Commercial vehicle" means — heavy goods vehicle, heavy passenger motorvehicle, light motor vehicle, medium goods vehicle, medium passenger motorvehicle.• 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 404) Containers made of glass or plastic used as refills 505) Computers (including computer software) 60• "Computer Software" means any computer programme recorded on any disc,tape, perforated media or other information storage device.
DEPRECIATION 6) Machinery and plants used in weaving, processing and garment sector of 50 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 7) Machinery and plant, acquired and installed on or after the 1-9-2002 in a 100 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) 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.
Computation of Dep.WDV of Plant and Machinery on 1-4-2008 500000Additions to machines on 15-11-2008 100000 600000Less: 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 475000Less: 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 followingparticulars are furnished for its depreciation claim for the yearended 31-3-2012:Buildings: Rs. Rate WDV of Factory Building 80000 10% New additions on 1-9-2011 in above 40000 WDV of Office Building 50000 10%Machinery: WDV of Machinery 100000 15% A new machine purchased and installed in production department on 1-4-2011 60000 An old machine purchased and installed in production department on 1-11-2011 50000 Sold an old machine on 1-11-2011 for 40000Furniture: WDV of Furniture 15000 10% New Additions to furniture on 1-12-2011 5000Work out the depreciation for the A.Y. 2012-13
ANS. Computation of Dep. For the Assessment Year 2012-13I Block Rs. Buildings: Factory & Office Building 10% on Rs. 80000 + 40000 + 50000 = Rs.170000 17000II Block Machinery: Rs. 100000 + 60000 + 50000 = Rs. 210000 – 40000 = Rs. 170000 Dep. on Rs. 120000 @ 15% and on Rs. 50000 @ 7.5% 21750 Additional Dep. on new machine @ 20% 12000III Block Furniture: Rs. 15000 + 5000 = Rs. 20000 Dep. 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. forthe previous year from 1st April, 2011 to 31st March, 2012are as under :i.A motor car, costing Rs. 40000 was purchased on 10 thJan, 2012. It is used partly for private purposes also 60%of use during the financial year 2011-12 related tobusiness.ii.Plant and machinery WDV on 1st April, 2011 Rs. 375000.Two new machine were installed on 1st Nov, 2011 inproduction department costing Rs. 100000 and Rs. 20000respectively. An old machine was sold during theprevious year for Rs. 300000.Calculate the amount of dep. Allowable for the A.Y. year2012-13
ANS. Computation of Dep.Car Rs. 40000 : Dep. @ 7.5% 3000Less: 40% for private use 1200 1800Plant & Machinery WDV on 1-4-2011 375000Add: Cost of New Machine 120000 495000Less: Sale of old machine 300000 195000Dep. On Rs. 75000 @ 15% 11250Dep. On Rs. 120000 @ 7.5% 9000Additional Dep. On Rs. 120000 @ 10 % 12000 32250 Total Rs. 34050
Q. The WDV of two plant and machinery A and B 1.4.2010is Rs. 1000000. Two new machinery C and D have beenacquired for manufacture of an article in Dec. 2010 andMay 2011 respectively at a cost of Rs. 500000 each. Compute the amount of dep. For the assessmentyear 2011-12 and 2012-13. The assessee is not entitled to additional dep. forthe A.Y. 2011-12.
ANS. Computation of Dep. A.Y. 2011-12 WDV of P & M on 1.4.2010 1000000Add: Machine purchased in Dec. 2010 500000 WDV for A.Y 2008-09 1500000Less: 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 1312500Add: Machine purchased in May 2011 500000 WDV for A.Y. 2012-13 1812500Les: 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 assetscomprising ten machines in production department (rateof dep. 15%) is Rs. 1250000. A new machine falling withinthat 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 theblock. Determine the amount of dep.
ANS. Computation of Dep. WDV of machines on 1.4.2011 1250000Add: Machine acquired & put to use on 15.12.2011 200000 1450000Less: Selling Price of ten machines 50000 1400000Dep. On Rs. 1200000 @ 15% 180000and on Rs. 200000 @ 7.5% 15000Additional 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 ofdep. 15%. WDV on April1, 2011: Rs. 250000.Block II: Buildings(two buildings), rate of dep. 10%. WDV onApril 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 itsproduction department.Admissible rate of dep. In relation to all acquired plants is15%.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 600000Less: Selling Price 450000 Rs. 150000On WDV for P.Y. 2011-12 @ 7.5% 11250Additional Dep. On Rs. 150000 @ 10% 15000 (a) 26250Block II : Buildings:1.4.2011 WDV 600000Dep. @ 10% (b) 60000 Rs. 540000 Total Dep. a + b Rs. 86250
Q. Mr. N purchased a machine on 31.11.2010 forRs200000 and spent Rs. 24000 on its installation. It wasused for his own business till 1.5.2011 on which date hesold it for Rs. 120000. He repurchased it on 1.10.2011 forRs. 320000. determine the actual cost and dep.Admissible for the year ending 31.3.2012. Rate of Dep. Is15%.
ANS. Computation of Dep.Actual Cost on 30.11.2010 200000Add: Installation charges 24000 224000Less: Dep. For P.Y. 2010-11 @ 7.5% 16800 Additional Dep. @ 10% 22400 WDV on 1.4.2011 Rs. 184800Now machine was sold on 1.5.2011 for Rs. 120000 and reacquired on1.10.2011 for Rs. 320000.Hence, the cost of acquisition amount paid Rs. 320000 orWDV Rs. 184800 whichever is less.Cost 184800Less: Dep. @15% 27720 WDV on 1.4.2012 Rs. 157080
Q. Compute the dep. For the A.Y. 2012-13 from the followingdetails:(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 andmotor 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 andbus is 30%.
ANS. Computation of Dep.Block I: Motor Cars @ 15% 1.4.2011 WDV (A+B) 110000 Less: Sold car (A) 70000 40000Add: Motor Car(H) purchased on 15.10.2011 110000 150000Dep. 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) 420000 Less: Motor bus F sold 60000 360000 Add: Motor Taxi G purchased on 15.8.2011 120000 480000Dep. 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 1.4.2011Machine I 25 1,50,000Furniture 15 50,000Machine II 25 50,000Machine III 50 40,000Computer(one) 60 40,000Machine II (dep. Rate 25%) was sold for Rs. 62,000 in May 2011. Amachine (dep. rate 25%) and a computer was brought for Rs. 80,000 andRs. 20,000 respectively in Nov., 2011. Compute dep. allowance for theprevious year 2011-12. The assessee is not entitled to additionaldepreciation 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 44,500Block II : Dep. @ 15%101.4.2011 WDV of Furniture 50,000 7,500Block III : Dep. @ 50%1.4.2011 WDV of machine 40,000 20,000Block 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 1,35,000Dep. @ 15% 20,250WDV of machines on 1.4.2011 1,14,750Add: 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 1,94,750Less: Machines sold 1,39,750 WDV on 31.3.2012 55,000Less: Dep. @ 7.5% 4,125 Additional Dep. @ 10% on 55,000 5,500 9,625 WDV on 1.4.2012 Rs. 45,375