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Jayesh Gupta
Jayesh GuptaCurious
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If someone can tell me the complete accounting with the percentage that would be great.

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be moreRead more

    I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be more than the rates prescribed in the Income Tax Act, 1961.

    It is a general practice to take depreciation rate lower than the Income Tax Act, 1961, so that the financial statements look good because of slightly higher profit. There is no harm in it as it is a sole proprietor.

    The Income Tax Act, 1961 has prescribed rates at which depreciation is to be given on different blocks of assets. For motor vehicles, the rates are as follows:

    Particulars Rates (WDV)
    1 Motor buses, motor Lorries and motor taxis used in a business of running them on hire. 30%
    2 Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August 2019 but before the 1st day of April 2020 and is put to use before the 1st day of April 2020. 45%
    3 Commercial vehicles to use in business other than running them on hire. 40%

    Let’s take an example to understand the accounting treatment:-So a business can choose to charge depreciation at rates slightly lower than the above rates.

    Mr A purchased a lorry for ₹1,00,000 on 1st April 2021 for his business, to be used for transportation of the finished goods. Now, Mr A decided to charge depreciation on the WDV method @30% (prescribed rate is 40%).

    Following will be the journal entries.

    I hope I was able to answer your question.

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Radha
Radha
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Meaning Capital assets mean the assets which are used in the business operations to generate revenue. The benefit from these assets is expected to flow to the enterprise beyond the time span of one year. Capital assets are commonly called fixed assets. Examples of capital assets are plant, machineryRead more

    Meaning

    Capital assets mean the assets which are used in the business operations to generate revenue. The benefit from these assets is expected to flow to the enterprise beyond the time span of one year. Capital assets are commonly called fixed assets.

    Examples of capital assets are plant, machinery, land, building, vehicles etc.

    To expense the capital assets for the economic benefits they provide, they are depreciated over their useful life on some equitable basis.

    When capital assets are sold, the gain on sale is credited to the capital reserve account. On loss, it is simply debited to the profit and loss account. Capital assets are shown under the heading ‘Plant, Property and Equipment’ under the asset head of the balance sheet.

    Assets that do not qualify as capital assets

    The assets which provide economic benefits for less than a year do not qualify as capital assets. Such as inventories, accounts receivables etc. are not capital assets.

    Also, those assets which are not intended to be held for more than 1 year are not capital assets even if such assets are capable of providing economic benefits for more than 1 year. Such assets will be considered current assets.

    For example, if a plot of land is purchased by a business but the intention is to sell it after 2 months then such land will not be considered a capital asset.

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Simerpreet
SimerpreetHelpful
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  2. Mitika

    Straight Line Depreciation Journal Entry Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets. The salvage value or Residual value of an asset means the estimated valueRead more

    Straight Line Depreciation Journal Entry

    Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets.

    The salvage value or Residual value of an asset means the estimated value of the asset at the end of its useful life.

    The depreciation can also be charged with another method like Written Down Value (WDV) Method.

     

    Formula

    Depreciation per annum = ( Cost of asset – Salvage Value) / Useful Life

     

    The journal entry for the depreciation is:

    JOURNAL ENTRIES

    		  
    Depreciation on Asset A/C                               DR.
                                To Asset A/C
    (Being depreciation charged on asset)

     

    Now let us understand this with an example, suppose XYZ Ltd. has an asset of value 90,000 with a useful life of 3 years. The company uses the straight-line method of depreciation to depreciate the asset in its book.

     

    So, the depreciation per annum would be calculated as:-

    = 90,000/3

    = 30,000

     

    In Year 1, the depreciation will be charged as 30,000 for this year. It will be debited to the  depreciation account and credited to the asset account. Thus, the value of the asset at the end of year 1 will be 60,000 (90,000-30,000).

    JOURNAL ENTRIES

    		  
      DR CR
    Depreciation on Asset A/C                                                   30,000
              To Asset A/C                                                                                                              30,000
    (being depreciation charged on asset)

     

    In Year 2, the depreciation will be charged as  30,000. The entry would be the same as the previous year. The value of the asset at the end of year 2 will be 30,000 (60,000-30,000).

    JOURNAL ENTRIES  
      DR CR
    Depreciation on Asset A/C                                                   30,000
              To Asset A/C                                                                                                                  30,000
    (being depreciation charged on asset)

     

    At last in Year 3, the depreciation will be charged 30,000. The entry would be the same. The value of the asset at the end of year 3 will be Nil (30,000- 30,000).

    JOURNAL ENTRIES

    		  
      DR

    CR
    Depreciation on Asset A/C                                                30,000
              To Asset A/C                                                                                                            30,000
    (being depreciation charged on asset)

     

    The depreciation will be charged to the profit and loss account for the year as it is an expense for the company.

     

    The entries will be posted into depreciation account as mentioned:

    DEPRECIATION A/C  
    Date Particulars Amount Date Particulars Amount
    Year 1 To Asset A/C 30,000   By Profit and Loss A/C 30,000
        30,000     30,000
               
    Year 2 To Asset A/C 30,000   By Profit and Loss A/C 30,000
        30,000     30,000
               
    Year 3 To Asset A/C 30,000   By Profit and Loss A/C 30,000
        30,000     30,000
               

     

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A_Team
A_Team
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Prepaid expense means a service to be rendered in the future period for which the business has already paid the remuneration. Prepaid expenses are classified as assets. The benefits of this payment will accrue to the business at a later period.  For example, insurance is often paid for annually on tRead more

    Prepaid expense means a service to be rendered in the future period for which the business has already paid the remuneration. Prepaid expenses are classified as assets. The benefits of this payment will accrue to the business at a later period. 

    For example, insurance is often paid for annually on the basis of the calendar year. A business may pay insurance every year on 1st January for that entire year. While preparing the financial statements on 31st March, it will recognize the insurance premium for the period 1st April to 31st December of the next financial year as a prepaid insurance expense. 

    Why are prepaid expenses classified as assets? 

    First of all, let us understand what an asset is. An asset is anything over which the business has ownership rights and which it can sell for money. The benefits of this asset should accrue to the business. 

    In light of this definition, let us analyze prepaid expenses as an asset. As the business has already paid for these goods or services, it becomes a legal right of the business to receive the relevant goods or services at a later date. As the benefit of this expense would accrue to the business only at a later date, the prepaid expenses are classified as an asset. 

    Some examples of prepaid expenses are prepaid insurance, prepaid rent etc

    Treatment of Prepaid Expenses

    Prepaid expenses are recorded in the balance sheet under the heading “Current Assets” and sub-heading “Other Current Assets”

    As per the Generally Accepted Accounting Principles or GAAP, expenses must be recognized in the accounting period to which they relate or in which the benefit due to them is likely to arise. Thus, we cannot recognize the prepaid expenses in the accounting period in which they are incurred. 

    Prepaid assets are classified as assets and carried forward in the balance sheet to be debited in the income statement of the accounting period to which they relate. 

    Adjusting Entries

    Adjusting entries are those entries that are used to recognize prepaid expenses in the income statement of the period to which they relate. These entries are not used to record new transactions. They ensure compliance with GAAP by recognizing the expenses in the period to which they relate. 

    Conclusion

    The GAAP and basic definition of an asset govern the treatment of prepaid expenses as an asset. The business incurs them in an accounting period different from the accounting period in which their benefit would accrue to the business. The business has a legal right to receive those goods or services. 

    The business carries them as a current asset on the balance sheet. In the relevant accounting period, they are recognized in the income statement. 

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income. In accrual accounting, income is recognised only when it is accrued or earned. DeferredRead more

    The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income.

    In accrual accounting, income is recognised only when it is accrued or earned. Deferred revenue is the income received before the performance of the economic activity to earn it.

    Example:  A shoe shop owner gives an order to a shoe manufacturer of 1000 pair of shoes which is to be delivered after 4 months. He also gives him a cheque of ₹15,000 in advance, the rest ₹5000 is to be given at the time of delivery.

    So, in this case, the ₹15,000 is actually is unearned revenue i.e. deferred revenue. It will be recognised as revenue when the shoe manufacture completes the order and deliver it.

    Till then, the deferred revenue is reported as a liability in the balance sheet. Like this:

    After recognition as revenue, it will be reported in the statement of profit or loss:

    Hence, to summarise, deferred revenue is:

    • Unearned revenue
    • Recognised as income till it is earned
    • Till then it is recognised and reported as a liability in the balance sheet.

    Some examples of deferred revenue are as follows:

    • Advance rent received
    • Advance payment for goods to be delivered.
    • Advanced payment for services to be provided.

    Now the question arises why deferred revenue is recognised as a liability. It is due to the fact that the business may not be able to perform the economic activity successfully to earn that revenue.

    Taking the above example, suppose the shoe manufacturer is not able to honour its commitment and the shoe shop owner can wait no more, then the advanced money of ₹ 15,000 is to be refunded. That’s why deferred revenue is recognised as a liability because it is a liability if we consider the principle of conservatism (GAAP).

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Naina@123
Naina@123
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  2. Radha M.Com, NET
    This answer was edited.

    Buildings S.No. Particulars Rate 1 Buildings which are used mainly for residential purposes except hotels and boarding houses. 5% 2 Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below. 10% 3 Buildings acquired on or after the 1st day oRead more

    Buildings
    S.No. Particulars Rate
    1 Buildings which are used mainly for residential purposes except hotels and boarding houses. 5%
    2 Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below. 10%
    3 Buildings acquired on or after the 1st day of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infra- structure facilities. 40%
    4 Purely temporary erections such as wooden structures. 40%
    Furniture & Fittings
    S.No. Particulars Rate
    Furniture and fittings including electrical fittings. 10%
    Machinery & Plant
    S.No. Particulars Rate
    1  Machinery and plant other than those covered by sub-items (2), (3) and (8) below. 15%
    2 (i) Motor cars, other than those used in a business of running them on hire, acquired or put to use on or after the 1st day of April, 1990 except those covered under entry (ii). 15%
    2 (ii) Motor cars, other than those used in a business of running them on hire, acquired on or after the 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020. 30%
    3 (i) Aeroplanes – Aero engines. 40%
    3 (ii) (a) Motor buses, motor lorries and motor taxis used in a business of running them on hire other than those covered under entry (b). 30%
    (b) Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020. 45%
    3 (iii) Commercial vehicle which is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, 1999 and is put to use for any period before the 1st day of April, 1999 for the purposes of business or profession. 40%
    3 (iv) New commercial vehicle which is acquired on or after the 1st October, 1998, but before the 1st April, 1999 in replacement of condemned vehicle of over 15 years of age and is put to use for any period before the 1st day of April, 1999 for the purposes of business or profession. 40%
    3 (v) New commercial vehicle which is acquired on or after the 1st April, 1999 but before the 1st April, 2000 in replacement of condemned vehicle of over 15 years of age and is put to use before the 1st April, 2000 for the purposes of business or profession. 40%
    3 (vi) New commercial vehicle which is acquired on or after the 1st April, 2001 but before the 1st April, 2002 and is put to use before the 1st day of April, 2002 for the purposes of business or profession. 40%
    3 (via) New commercial vehicle which is acquired on or after the 1st January, 2009 but before the 1st October, 2009 and is put to use before the 1st October, 2009 for the purposes of business or profession. 40%
    3 (vii) Moulds used in rubber and plastic goods factories. 30%
    3 (viii) Air pollution control equipment. 40%
    3 (ix) Water pollution control equipment. 40%
    3 (x) Solid waste control equipments & solid waste recycling and resource recovery systems. 40%
    3 (xi) Machinery and plant, used in semi-conductor industry covering all integrated circuits (ICs). 30%
    3 (xia) Life saving medical equipment. 40%
    4  Containers made of glass or plastic used as re-fills. 40%
    5 Computers including computer software. 40%
    6 Machinery and plant, used in weaving, processing and garment sector of textile industry, which is purchased & put to use under TUFS on or after the 1st April, 2001 but before the 1st April, 2004. 40%
    7 Machinery and plant, acquired and installed on or after the 1st September, 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. 40%
    8 (i) Wooden parts used in artificial silk manufacturing machinery. 40%
    8 (ii) Cinematograph films – bulbs of studio lights. 40%
    8 (iii) Match factories – Wooden match frames. 40%
    8 (iv) Mines and quarries. 40%
    8 (v) Salt works – Salt pans, reservoirs and condensers, etc., made of earthy, sandy or clayey material or any other similar material. 40%
    8 (vi) Flour mills – Rollers. 40%
    8 (vii) Iron and steel industry – Rolling mill rolls. 40%
    8 (viii) Sugar works – Rollers. 40%
    8 (ix) Energy saving devices: (a) Specialised boilers and furnaces. 40%
    (b) Instrumentation and monitoring system for monitoring energy flows. 40%
    (c) Waste heat recovery equipment. 40%
    (d) Co-generation systems. 40%
    (e) Electrical equipment. 40%
    (f) Burners. 40%
    (g) Other equipment. 40%
    8 (x) Gas cylinders including valves and regulators. 40%
    8 (xi) Glass manufacturing concerns – Direct fire glass melting furnaces. 40%
    8 (xii) Mineral oil concerns: (a) Plant used in field operations (above ground) distribution – Returnable packages. 40%
    (b) Plant used in field operations (below ground), but not including kerbside pumps including underground tanks and fittings used in field operations (distribution) by mineral oil concerns. 40%
    (c) Oil wells not covered in clauses (a) and (b). 15%
    8 (ix) Renewal energy devices. 40%
    9 (i) Books owned by assessees carrying on a profession. 40%
    9 (ii) Books owned by assessees carrying on business in running lending libraries. 40%
    Ships
    S.No. Particulars Rate
    1 Ocean-going ships including dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging purposes and fishing vessels with wooden hull. 20%
    2 Vessels ordinarily operating on inland waters, not covered by sub-item (3) below. 20%
    3 Vessels ordinarily operating on inland waters being speed boats. 20%
    Intangible Assets
    S.No. Particulars Rate
    1 Know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature not being goodwill of business of profession. 25%

     

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