As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below They are categorized by the companies act as follows: when these car/ motor vehicles are owned with no intention to sell within the accounting period and are generally used to generateRead more
As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below
They are categorized by the companies act as follows:
when these car/ motor vehicles are owned with no intention to sell within the accounting period and are generally used to generate revenue. For example, giving cars/motor vehicles on lease or hire purpose.
cars/motor vehicles when used for purposes other than the business of hire. For example, a car is owned for official use.
Car/motor vehicles are considered as fixed tangible assets. Treatment of these cars/ motor vehicles is similar to those of other fixed assets. The depreciation will be shown as an expense in the profit and loss account and also the value of these assets will be adjusted in the balance sheet.
Explaining with a simple example: Mars.Ltd purchased a car for Rs 10,00,000, and use it for its official purpose. Its useful life as per act is taken as 6 years and the rate of depreciation as 31.23% as per the WDV method.
Therefore depreciation as per WDV is calculated as follows
Cost of car = Rs 10,00,000
Residual value = NIL
Rate of depreciation = 31.23%
depreciation for first-year = Rs (10,00,000 – NIL)*31.23%
= Rs 3,12,300
Calculated depreciation on this car will be shown in the profit and loss account as an expense and the same will be treated under the balance sheet every year. Here is the extract of profit and loss and the balance sheet for the above example.
The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired. As per the Income Tax Act, cars come under the Plant and Machinery block of assets. The Act classifies cars into two categories, Group 1 - MotorRead more
The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired.
As per the Income Tax Act, cars come under the Plant and Machinery block of assets.
The Act classifies cars into two categories,
Group 1 – Motor cars other than those used in the business of running them on hire.
Group 2 – Motor taxis used in the business of running them on hire.
Group 1:
If the motor car is acquired and put to use on or after 23rd August 2019 but before 1st April 2020, then the rate applicable is 30%.
If the motor car is acquired and put to use on or after 1st April 1990, then the rate applicable is 15%. (All the cars which are not covered under the category (1) comes under this category.)
Group 2:
If the motor taxi is acquired and put to use on or after 23rd August 2019 but before 1st April 2020, then the rate applicable is 45%.
The rate applicable for motor taxis not covered under category (1) is 30%.
Here is a summarised version of the rates applicable to cars,
The rates can also be found on the Income Tax India website.
Software is not depreciated but amortized, as it is an intangible asset. As per companies act the useful life of software is 3 years. The treatment of depreciation is the same as computers. Following are the software depreciation rates as per the companies act: As of 2021 Nature of Asset Useful LifeRead more
Software is not depreciated but amortized, as it is an intangible asset. As per companies act the useful life of software is 3 years. The treatment of depreciation is the same as computers. Following are the software depreciation rates as per the companies act:
As of 2021
Nature of Asset
Useful Life
Depreciation
WDV
SLM
Servers and networks
6 years
39.30%
15.83%
End-user devices such as desktops, laptops, etc.
3 years
63.16%
31.67%
For example, XYZ Ltd purchased a new accounting software on 1 October for Rs.50,000. As per the Companies Act, the useful life of software is 3 years. Hence, the software will be amortized for 3 years and the company amortizes on the straight-line method.
Amortization amount = 50,000*31.67%
For full year = Rs.15,835
As the software was purchased on 1 October hence it will be amortized for 6 months.
For 6 months = 15,835*6/12
= Rs.7,917.50
Amortization is the same as depreciation. Hence, treatment will also be the same. The amortization amount will be transferred to the Profit & Loss A/c on the debit side as a non-cash expense.
The correct option is 2. Amortization. Depreciation in spirit is similar to Amortization because both depreciation and amortization have the same characteristics except that depreciation is used for tangible assets and amortization for intangible assets. To make it clear, intangible assets are thoseRead more
The correct option is 2. Amortization.
Depreciation in spirit is similar to Amortization because both depreciation and amortization have the same characteristics except that depreciation is used for tangible assets and amortization for intangible assets.
To make it clear, intangible assets are those assets that cannot be touched i.e. they are not physically present. For example, goodwill, patent, trademark, etc. Hence, these assets are amortized over their useful life and not depreciated.
Example for Amortizing intangible assets: A manufacturing company buys a patent for Rs 80,000 for 8 years. Assuming that the residual value of the patent after 8 years to be zero.
The depreciation to be written off will be
Yearly Depreciation = Cost of the patent – Residual value / Expected life of the asset.
= 80,000 – 0 / 8
= Rs 10,000 every year.
Whereas, tangible assets are those assets that can be touched i.e. they are physically present. For example, building, plant & machinery, furniture, etc. Hence, these assets are depreciated over their useful life and not amortized.
Example of Depreciating tangible asset: A manufacturing company bought machinery for Rs 8,10,000 and its estimated life is 8 years, scrap value being Rs 10,000.
The depreciation to be written off will be
Yearly Depreciation = Cost of machinery – Scrap value / Expected life of the asset.
The total depreciation of an asset cannot exceed its 3. depreciable value. Depreciable value means the original cost of the asset minus its residual/salvage value. The asset's original cost is inclusive of the purchase price and other expenses incurred to make the asset operational. To put it simplRead more
The total depreciation of an asset cannot exceed its 3. depreciable value.
Depreciable value means the original cost of the asset minus its residual/salvage value. The asset’s original cost is inclusive of the purchase price and other expenses incurred to make the asset operational. To put it simply,
The accumulated depreciation on an asset can never exceed its depreciable value because depreciation is a gradual fall in the value of an asset over its useful life. Only a certain percentage of the asset’s book value/original cost is shown as depreciation every year. So, it is impossible/illogical for the accumulated depreciation of an asset to exceed its depreciable value.
Let me show you an example to make it more understandable,
Amazon installs machines to automate the job of packing orders. The original cost of the machine is $1,000,000. Now let’s assume,
The estimated useful life of the machine – 10 years.
Residual value at the end of 10 years – $50,000.
Method of depreciation – Straight-line method.
The depreciable value of the machine will be $950,000 (1,000,000 – 50,000). The depreciation for each year under SLM will be calculated as follows:
Depreciation = (Original cost of the asset – Residual/Salvage Value) / (Useful life of the asset)
Applying this formula, $95,000 (1,000,000 – 50,000/10) will be charged as depreciation every year. The accumulated depreciation at the end of 10 years will be $950,000 (95,000*10). As you can see, the accumulated depreciation ($950,000) of the machine does not exceed its depreciable value ($950,000).
Thus, the total depreciation of an asset cannot be more than its depreciable value.
The correct answer is 4. Not shown in Branch Account. The value of depreciation of fixed assets will be not shown in the branch accounting because the opening value of the asset is recorded at the start of the period on the debit side and the closing value of the asset is shown on the credit side atRead more
The correct answer is 4. Not shown in Branch Account.
The value of depreciation of fixed assets will be not shown in the branch accounting because the opening value of the asset is recorded at the start of the period on the debit side and the closing value of the asset is shown on the credit side at the end of the period.
The difference between the opening and closing values of the asset is the value of depreciation which is automatically charged. In this case, if depreciation is also shown it will be counted twice.
Example:
XYZ Ltd purchased furniture for one of its branches on 1st January. Following are the details of the purchase:
Furniture as on 1st January
$30,000
Furniture purchased on 1st June
$5,000
Depreciation is provided on furniture at @10% per annum on the straight-line method.
Woking Notes:
Amt
i. Depreciation on furniture:
On $30,000 @10% p.a for full year
3,000
On $5,000 @10% p.a for 6 months
250
3,250
ii. Branch Furniture as of 31 Dec:
Furniture as of 1 January
30,000
Add: Addition made during the year
5,000
35,000
Less: Depreciation
(3,250)
31,750
As additional furniture was purchased after 6 months, depreciation will be charged on that and the total depreciation of 3,250 will be charged on the furniture of $35,000 ($30,000+$5,000) and the difference will be the closing balance which will be shown in the branch account on the credit side.
The depreciation amount will not be shown in the Branch Account as the difference between the opening and closing values of the furniture reflects the value of depreciation. If depreciation is shown in the account it will be counted twice.
Let me brief you about the nature of computers, their parts, laptops according to the companies act 2013. Basically, these are treated as non-current tangible fixed assets. This is because these types of equipment are used in business to generate revenue over its useful life for more than a year. AsRead more
Let me brief you about the nature of computers, their parts, laptops according to the companies act 2013. Basically, these are treated as non-current tangible fixed assets. This is because these types of equipment are used in business to generate revenue over its useful life for more than a year. As per the companies act 2013, the following extract of the depreciation rate chart is given for computers.
Giving you a short example, suppose M/s spy Ltd purchased 20 computers worth Rs 30000 each. As per the companies act 2013, the computer’s useful life is taken to be 3 years, and the rate of depreciation rate is 63.16%. Applying the WDV method we can calculate depreciation as follows:
Depreciation as per WDV =
(Cost of an asset – salvage value)* Depreciation rate
So for the first year, the depreciation amount will be
Cost of computers = Rs 6,00,000 (20*30000)
Salvage value = NIL
Rate of depreciation as per the Act = 63.16%
Therefore depreciation = (6,00,000 – NIL)* 63.16%
= Rs 3,78,960
this amount of depreciation will be shown in the profit & loss account as depreciation charged to computers and the same will be adjusted in the balance sheet. The extract of Profit & Loss and corresponding year Balance sheet is shown below.
Depreciation on car as per companies act?
As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below They are categorized by the companies act as follows: when these car/ motor vehicles are owned with no intention to sell within the accounting period and are generally used to generateRead more
As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below
They are categorized by the companies act as follows:
Car/motor vehicles are considered as fixed tangible assets. Treatment of these cars/ motor vehicles is similar to those of other fixed assets. The depreciation will be shown as an expense in the profit and loss account and also the value of these assets will be adjusted in the balance sheet.
Explaining with a simple example: Mars.Ltd purchased a car for Rs 10,00,000, and use it for its official purpose. Its useful life as per act is taken as 6 years and the rate of depreciation as 31.23% as per the WDV method.
Therefore depreciation as per WDV is calculated as follows
Cost of car = Rs 10,00,000
Residual value = NIL
Rate of depreciation = 31.23%
depreciation for first-year = Rs (10,00,000 – NIL)*31.23%
= Rs 3,12,300
Calculated depreciation on this car will be shown in the profit and loss account as an expense and the same will be treated under the balance sheet every year. Here is the extract of profit and loss and the balance sheet for the above example.
See lessDepreciation on car as per income tax act?
The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired. As per the Income Tax Act, cars come under the Plant and Machinery block of assets. The Act classifies cars into two categories, Group 1 - MotorRead more
The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired.
As per the Income Tax Act, cars come under the Plant and Machinery block of assets.
The Act classifies cars into two categories,
Group 1:
Group 2:
Here is a summarised version of the rates applicable to cars,
The rates can also be found on the Income Tax India website.
See lessDepreciation on software as per companies act?
Software is not depreciated but amortized, as it is an intangible asset. As per companies act the useful life of software is 3 years. The treatment of depreciation is the same as computers. Following are the software depreciation rates as per the companies act: As of 2021 Nature of Asset Useful LifeRead more
Software is not depreciated but amortized, as it is an intangible asset. As per companies act the useful life of software is 3 years. The treatment of depreciation is the same as computers. Following are the software depreciation rates as per the companies act:
As of 2021
For example, XYZ Ltd purchased a new accounting software on 1 October for Rs.50,000. As per the Companies Act, the useful life of software is 3 years. Hence, the software will be amortized for 3 years and the company amortizes on the straight-line method.
Amortization amount = 50,000*31.67%
For full year = Rs.15,835
As the software was purchased on 1 October hence it will be amortized for 6 months.
For 6 months = 15,835*6/12
= Rs.7,917.50
Amortization is the same as depreciation. Hence, treatment will also be the same. The amortization amount will be transferred to the Profit & Loss A/c on the debit side as a non-cash expense.
See lessDepreciation in spirit is similar to?
The correct option is 2. Amortization. Depreciation in spirit is similar to Amortization because both depreciation and amortization have the same characteristics except that depreciation is used for tangible assets and amortization for intangible assets. To make it clear, intangible assets are thoseRead more
The correct option is 2. Amortization.
Depreciation in spirit is similar to Amortization because both depreciation and amortization have the same characteristics except that depreciation is used for tangible assets and amortization for intangible assets.
To make it clear, intangible assets are those assets that cannot be touched i.e. they are not physically present. For example, goodwill, patent, trademark, etc. Hence, these assets are amortized over their useful life and not depreciated.
Example for Amortizing intangible assets: A manufacturing company buys a patent for Rs 80,000 for 8 years. Assuming that the residual value of the patent after 8 years to be zero.
The depreciation to be written off will be
Yearly Depreciation = Cost of the patent – Residual value / Expected life of the asset.
= 80,000 – 0 / 8
= Rs 10,000 every year.
Whereas, tangible assets are those assets that can be touched i.e. they are physically present. For example, building, plant & machinery, furniture, etc. Hence, these assets are depreciated over their useful life and not amortized.
Example of Depreciating tangible asset: A manufacturing company bought machinery for Rs 8,10,000 and its estimated life is 8 years, scrap value being Rs 10,000.
The depreciation to be written off will be
Yearly Depreciation = Cost of machinery – Scrap value / Expected life of the asset.
= 8,10,000 – 10,000 / 8
= 8,00,000 / 8
= Rs 1,00,000 every year.
See lessTotal depreciation of an asset cannot exceed its?
The total depreciation of an asset cannot exceed its 3. depreciable value. Depreciable value means the original cost of the asset minus its residual/salvage value. The asset's original cost is inclusive of the purchase price and other expenses incurred to make the asset operational. To put it simplRead more
The total depreciation of an asset cannot exceed its 3. depreciable value.
Depreciable value means the original cost of the asset minus its residual/salvage value. The asset’s original cost is inclusive of the purchase price and other expenses incurred to make the asset operational. To put it simply,
The accumulated depreciation on an asset can never exceed its depreciable value because depreciation is a gradual fall in the value of an asset over its useful life. Only a certain percentage of the asset’s book value/original cost is shown as depreciation every year. So, it is impossible/illogical for the accumulated depreciation of an asset to exceed its depreciable value.
Let me show you an example to make it more understandable,
Amazon installs machines to automate the job of packing orders. The original cost of the machine is $1,000,000. Now let’s assume,
The estimated useful life of the machine – 10 years.
Residual value at the end of 10 years – $50,000.
Method of depreciation – Straight-line method.
The depreciable value of the machine will be $950,000 (1,000,000 – 50,000). The depreciation for each year under SLM will be calculated as follows:
Depreciation = (Original cost of the asset – Residual/Salvage Value) / (Useful life of the asset)
Applying this formula, $95,000 (1,000,000 – 50,000/10) will be charged as depreciation every year. The accumulated depreciation at the end of 10 years will be $950,000 (95,000*10). As you can see, the accumulated depreciation ($950,000) of the machine does not exceed its depreciable value ($950,000).
Thus, the total depreciation of an asset cannot be more than its depreciable value.
See lessIn branch accounting depreciation on branch fixed assets is?
The correct answer is 4. Not shown in Branch Account. The value of depreciation of fixed assets will be not shown in the branch accounting because the opening value of the asset is recorded at the start of the period on the debit side and the closing value of the asset is shown on the credit side atRead more
The correct answer is 4. Not shown in Branch Account.
The value of depreciation of fixed assets will be not shown in the branch accounting because the opening value of the asset is recorded at the start of the period on the debit side and the closing value of the asset is shown on the credit side at the end of the period.
The difference between the opening and closing values of the asset is the value of depreciation which is automatically charged. In this case, if depreciation is also shown it will be counted twice.
Example:
XYZ Ltd purchased furniture for one of its branches on 1st January. Following are the details of the purchase:
Depreciation is provided on furniture at @10% per annum on the straight-line method.
As additional furniture was purchased after 6 months, depreciation will be charged on that and the total depreciation of 3,250 will be charged on the furniture of $35,000 ($30,000+$5,000) and the difference will be the closing balance which will be shown in the branch account on the credit side.
The depreciation amount will not be shown in the Branch Account as the difference between the opening and closing values of the furniture reflects the value of depreciation. If depreciation is shown in the account it will be counted twice.
See lessWhat is depreciation on computer as per companies act 2013?
Let me brief you about the nature of computers, their parts, laptops according to the companies act 2013. Basically, these are treated as non-current tangible fixed assets. This is because these types of equipment are used in business to generate revenue over its useful life for more than a year. AsRead more
Let me brief you about the nature of computers, their parts, laptops according to the companies act 2013. Basically, these are treated as non-current tangible fixed assets. This is because these types of equipment are used in business to generate revenue over its useful life for more than a year. As per the companies act 2013, the following extract of the depreciation rate chart is given for computers.
Giving you a short example, suppose M/s spy Ltd purchased 20 computers worth Rs 30000 each. As per the companies act 2013, the computer’s useful life is taken to be 3 years, and the rate of depreciation rate is 63.16%. Applying the WDV method we can calculate depreciation as follows:
So for the first year, the depreciation amount will be
Cost of computers = Rs 6,00,000 (20*30000)
Salvage value = NIL
Rate of depreciation as per the Act = 63.16%
Therefore depreciation = (6,00,000 – NIL)* 63.16%
= Rs 3,78,960
this amount of depreciation will be shown in the profit & loss account as depreciation charged to computers and the same will be adjusted in the balance sheet. The extract of Profit & Loss and corresponding year Balance sheet is shown below.
See less