Depreciation on Tools and Equipment

Tools and Equipment are the instruments that are used for producing any product, machine, or service. Also, tools and equipment are a part of plants and machinery, making them a major fixed asset. Therefore, a certain percentage of depreciation is charged on Tools and Equipment.

As we’re aware, depreciation refers to a process in which assets lose their value over time until it becomes obsolete or zero. It is chargeable on the fixed assets and it ultimately results in depreciation of the value of fixed assets except, land. The land is an exception in fixed assets as where all the fixed assets are depreciated, the land’s value is appreciated over time.

The rate of depreciation as per the Income Tax Act on tools and equipment (plant and machinery) is 15%.

Example

Suppose given below are the details regarding the tools and equipment:

And, we’re required to calculate the value of the tools and equipment as on 1-Mar-22

In this, as we can see the business’ accounting period starts in March and ends in April. Therefore, we can easily deduct the depreciation amount and get the desired result.

Solution: Opening Value = $30,000

Depreciation = 15% of $30,000 = $4,500

Value of tools and equipment as on 1-Mar-22 = $30,000 – $4500 = $25,500