AccountingQA Latest Questions

Radhika
Radhika
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Plant and Machinery are the equipment attached to the earth that supports the manufacturing of the company or its operations. These are tangible non-current assets to the company and as a result, have a debit balance. Depreciation is the decrease in the value of an asset that is spread over the expeRead more

    Plant and Machinery are the equipment attached to the earth that supports the manufacturing of the company or its operations. These are tangible non-current assets to the company and as a result, have a debit balance.

    Depreciation is the decrease in the value of an asset that is spread over the expected life of the asset. Not depreciating an asset presents a false image of the company as the asset is recorded at a higher value and profit is overstated as depreciation expense is not provided for.

    There are two ways that a company provide depreciation:

    • By reducing the balance of an asset in the Asset Account by passing a journal entry.
    • By maintaining a separate account for depreciation called Accumulated Depreciation A/c. The nature of this account is naturally credit since it is created to reduce the value of an asset.

    For most of the depreciation methods, we need a rate to provide for depreciation every year. Now, for accounting purposes, the management can use a rate they think is suitable depending on the use and expected life of the machinery.

    Depreciation is calculated on the basis of the Companies act, 2013 for the purpose of book-keeping. According to Schedule 2 of the Companies Act, depreciation on plant and machinery is calculated on the basis of either SLM or WDV.

    Plant and machinery for those special rates are not assigned useful life is considered to be 15 years and depreciation is calculated @ 18.10% on WDV and @6.33% on SLM.

    According to the Income Tax Act, 15% depreciation is provided every year on Plant and Machinery and, an additional 20% depreciation is provided in the first year of installation of machinery.

    Depreciation on Machinery is charged on the basis of usage of such machinery. if it is used for 180 days or more then full depreciation is allowed and if it is used for less than 180 days then only 50% depreciation is allowed.

     

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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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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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Simerpreet
SimerpreetHelpful
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  2. Poorvi_*
    This answer was edited.

    When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be                              Particulars     Debit   Credit Depreciation a/c                                              Dr.      (xxx)      To Vehicle a/c      (xxx) (Being DepreciationRead more

    When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be

                                 Particulars     Debit   Credit
    Depreciation a/c                                              Dr.      (xxx)
         To Vehicle a/c      (xxx)
    (Being Depreciation charge on Vehicle made)

    For example, let us assume that a vehicle (Bike) was purchased on 1st April 2019 with INR. 2,50,000, the rate of depreciation is 15% and also the Company follows the straight-line method of calculating depreciation.

    Then the journal entries shall be,

    The depreciation charge for the 1st Year 

            Date                                Particulars  Debit  Credit
    31-03-2020 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 2nd Year 

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 3rd Year

            Date                                Particulars  Debit  Credit
    31-03-2022 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The respective ledger accounts for all three years are given below:

    When the Accumulated depreciation account is maintained, the journal entry for vehicle depreciation shall be

                                 Particulars   Debit   Credit
    Depreciation a/c                                              Dr.    (xxx)
         To Accumulated depreciation a/c    (xxx)
    (Being Depreciation charge on Vehicle made)

    Taking the above said example,

    The depreciation charge for the 1st Year 

            Date                                Particulars  Debit  Credit
    31-03-2020 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 2nd Year 

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 3rd Year

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The respective ledger accounts for all three years are given below:

     

     

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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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