AccountingQA Latest Questions

Ayushi
AyushiCurious
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  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and othRead more

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and other stakeholders are secured.

    MAXIMUM REMUNERATION

    As per section 197 of the Companies Act, the Company has certain limits on paying maximum remuneration, depending on whether he is working full-time or part-time. If the company has only one whole-time manager, he is entitled to a maximum remuneration of 5% of net profits. If there is more than one whole time manager, then the percentage increases to 10%.

    For part-time directors, the remuneration allowed is 1% of net profits (if there is a whole-time director present) and if no whole-time manager is present, then remuneration for a part-time director is 3%.

    Therefore, a company can only pay a maximum remuneration of 11% of net profits.

    A public company is allowed to pay remuneration in excess of 11% by :

    • Passing a special resolution approved by the shareholders
    • Subject to compliance with Schedule V conditions

    Remuneration can be paid to such managers who do not have any direct interest in the company and also possesses special knowledge and expertise along with a graduate-level qualification.

    PENALTY

    Any person who fails to comply with the provisions of managerial remuneration shall be punishable with a fine that can vary from Rs. 1 Lakh to a maximum of Rs. 5 Lakhs.

    However, Sec 197 applies to only public companies and hence private companies are free to pay managerial remuneration with no upper limit.

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Simerpreet
SimerpreetHelpful
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  2. Razeen_Nakhwa

    Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs vs. when payment is received or made.  The most common accrual accounting examples are sales on credit, purchases on credit, rent paid, electricity expense, depreciation, audit fees, and otherRead more

    Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs vs. when payment is received or made.  The most common accrual accounting examples are sales on credit, purchases on credit, rent paid, electricity expense, depreciation, audit fees, and other such things.

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  2. Ayushi Curious Pursuing CA

    The partnership act 1932 does not mention the types of partners specifically. It does have mentions of ‘partner who is minor’ in section 30 and ‘partner by holding out in section 28. But we do come across many types of partners in partnership firms. Following is the list of the types of partners weRead more

    The partnership act 1932 does not mention the types of partners specifically. It does have mentions of ‘partner who is minor’ in section 30 and ‘partner by holding out in section 28.

    But we do come across many types of partners in partnership firms. Following is the list of the types of partners we generally see:-

    1. Active partner: – It is the partner who provides the capital and is also actively involved in the management and daily activities of the firm. Such a type of partner is of utmost importance to the firm. Apart from a share in profit and loss, he is also eligible to draw remuneration from the firm.

     

    1. Sleeping/ Dormant partner: – This type of partner does not participate in the daily workings of the firm nor actively participates in the management of the firm. Such a type of partner has a large sum of capital invested in the firm and shares the profits as well as losses of the firm.

     

    1. Partner by holding out:- If any partner, who by his words or by his conduct, represents himself as a partner of a firm, then he is called a partner by holding out. Such a partner is actually not a partner of the firm and doesn’t receive any share of profit as he has contributed no capital.

    As per section 28, such a partner is liable to any person who has given credit to the firm on             the belief that he is a partner of the firm.

     

    1. Minor partner: – If any person who is less than 18 years of age is admitted into the firm, such partner is known as a minor partner. Such a partner is entitled to the profits of the firm based on his capital but is immune from losses suffered by the firm.

     

    1. Secret partner: – It is a partner of a firm whose membership is kept hidden from the outsiders such as creditors and other third parties. But he is equally liable as other partners for the outside liabilities.

     

    1. Outgoing partner: – A partner who voluntarily leaves the partnership without dissolving the firm is called an outgoing partner or retiring partner. Such a partner is liable to all liabilities incurred before his retirement. But he can be held liable to outside liabilities if he fails to give public notice of his retirement.

     

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Simerpreet
SimerpreetHelpful
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  2. Kajal
    This answer was edited.

    Trading A/c is a nominal account which follows the rule "Debit all expenses and losses, Credit all incomes and gains". So, all expenses relating to the purchase or manufacturing of goods are shown on the debit side of the Trading A/c. It includes Opening Stock, Purchases, Wages, Carriage Inward, ManRead more

    Trading A/c is a nominal account which follows the rule “Debit all expenses and losses, Credit all incomes and gains”.

    So, all expenses relating to the purchase or manufacturing of goods are shown on the debit side of the Trading A/c. It includes Opening Stock, Purchases, Wages, Carriage Inward, Manufacturing Expenses, Dock charges, and other direct expenses that are directly related to the manufacturing or purchase.

     

    TRADING ACCOUNT

    Trading A/c is prepared for calculating the Gross Profit or Gross Loss arising from the trading activities of a business.

    Trading activities are mostly related to buying and selling of goods. However, in between buying and selling, a lot of activities are involved like transportation, warehousing, etc. So, all the expenses that are directly related to manufacturing or purchase of goods are also recorded in the Trading A/c.

     

     

    DEBIT SIDE OF TRADING A/C

    The items shown on the Dr. side are,

    OPENING STOCK – Stock is nothing but goods that are either obtained for resale or manufactured for sale and are yet unsold on any particular date.

    The value of stock at the beginning of an accounting year is called Opening stock while the value of the stock at the end of an accounting year is called closing stock.

    The closing stock of the last year becomes the opening stock of the current year.

    Opening stock includes,

    1. Opening Stock of Raw materials
    2. Opening Stock of Semi-finished goods
    3. Opening Stock of Finished goods

    For example – Suppose you are in the business of manufacturing and trading shirts. On 31st March 2023, there was unused raw material worth $10,000 and shirts worth $50,000 remained unsold.

    So, we have Closing Stock of Raw material – $10,000

    Closing Stock of Finished Goods – $50,000

    This closing stock of last year becomes your opening stock during the current year i.e. on 1st April 2023, we have

    Opening Stock of raw material – $10,000

    Opening Stock of Finished Goods – $50,000

    PURCHASES – Goods that have been bought for resale or raw materials purchased for manufacturing the product are terms as Purchases. These goods must be related to the business you are doing.

    It includes cash as well as credit Purchases.

    Continuing with the above example, suppose you bought raw material worth $ 1,00,000 for manufacturing and shirts worth $50,000 for resale (and not for personal consumption) then both these will be termed as purchases for you. So, your purchases will be $1,50,000 ($1,00,000 + $50,000)

    PURCHASES RETURN – When goods bought are returned to the suppliers due to any reason. This is known as Purchase return. Purchase return is deducted from the Purchases.

    In the above example, you bought shirts worth $50,000 for resale. Out of which shirts worth $20,000 were defective. So, you returned them to the supplier. This return of $20,000 is your purchase return or return outwards (as goods are going out)

    WAGES – Wages are paid to the workers who are directly engaged in the loading, unloading and production of goods.

    For example – Paid $10,000 to workers for manufacturing shirts.

    However, it would be included in Trading A/c only if the wages are paid for work which is directly related to the manufacturing or purchase of goods otherwise it will be shown in P&L A/c.

    Suppose you hired a manager to take care of your business and paid him $20,000 as salary. This salary is indeed an expense for the business but is not directly related to the manufacturing of goods. Since it is an indirect expense, it can only be recorded in P&L  A/c and not in the Trading A/c.

    CARRIAGE or CARRIAGE INWARDS or FREIGHT – It refers to the cost of transporting goods from the supplier.

    Suppose, you ordered raw material in bulk which was transported to you by a van and you paid its fare. This fare is nothing but your carriage inwards.

    However, if carriage or freight is paid on bringing an asset, the amount should be added to the asset account and must not be debited to the trading account.

    MANUFACTURING EXPENSES – All expenses incurred in the manufacture of goods such as  Coal, Gas, Fuel, Water, Power, Factory rent, Factory lighting etc.

    DOCK CHARGES – These are charged by port authorities when unloading goods at a dock or wharf. Such charges paid in connection with goods purchased are considered direct expenses and are debited to Trading a/c.

    IMPORT DUTY or CUSTOM DUTY – It is a tax collected on imports and specific exports by a country’s customs authorities. If import duty is paid on the import of goods, then they are shown on the Dr. side of the Trading A/c.

    For example –  Paid $15,000 as import duty for importing shirts for resale.

    ROYALTY – Royalty refers to the amount paid for the use of assets belonging to another person. It includes royalty for the use of intangible assets, such as copyrights, trademarks, or franchisee agreements. It is also paid for the use of natural resources, such as mining leases.

    Royalty is charged to the Trading A/c as it increases the cost of production.

    GROSS PROFIT – When sales exceed the amount of purchases and the expenses directly connected with such purchases i.e. when Credit side> Debit side.

     

    CREDIT SIDE OF TRADING A/C

    SALES – When goods are sold to earn a profit, it is called sales. It can be cash sales or credit sales.

    SALES RETURN – When the goods sold are returned by the customer, it is known as a sales return. Sales return is deducted from the sales.

    CLOSING STOCK – The goods remaining unsold at the end of the year are termed as closing stock. It is valued at cost price or market price whichever is less.

    GROSS LOSS – If purchases and direct expenses exceed sales, then it is a Gross loss. In other words, when Debit side > Credit side.

     

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A_Team
A_Team
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Goodwill Patents Preliminary Expense A/c Claims Receivable

  2. Karishma
    This answer was edited.

    Fictitious assets are expenses or losses not written off entirely in the profit and loss account during the accounting year in which they occur. Fictitious assets have no realizable value or physical existence. In the above, (C) preliminary expense is a fictitious asset. Preliminary expenses are theRead more

    Fictitious assets are expenses or losses not written off entirely in the profit and loss account during the accounting year in which they occur. Fictitious assets have no realizable value or physical existence.

    In the above, (C) preliminary expense is a fictitious asset. Preliminary expenses are the expenses incurred before the incorporation of a business. The word ‘fictitious’ means fake, these are not actually the assets of a company even though they are represented in the assets of the balance sheet.

    Since the benefit of a fictitious asset is received over a period of time, the whole amount is not charged to the profit and loss account. The amount is amortized over several years. These expenses are non-recurring in nature. These expenses are shown as assets under the head miscellaneous expenditure. Also known as deferred revenue expenditure.

     

    For example: A company incurred $50,000 as promotion costs before the formation of the business. This promotion cost will be deferred over 5 years. In the first year, $10,000 will be charged to the profit and loss account and the remaining $40,000 will be shown as an asset under the heading miscellaneous expenditure. Subsequently, $10000 will be charged to profit and loss for the next 4 years. The amount of $50,000 will be deferred over a span of 5 years.

    Some other examples of fictitious assets :

    • Promotional expenses: Expenses incurred for the promotion of business before the formation of the company such as advertising expenditures are amortized over many years.
    • Loss on the issue of shares or debentures: When a company issues shares or debentures at a discount, the discount is classified as a fictitious asset and is not treated as an expense or loss. It is amortized over several years.
    • Incorporation costs: Costs incurred during the formation of a business are incorporation costs. These include registration costs, licensing fees, legal fees and other costs incurred in setting up the business. These are fictitious assets and are amortized over several years.
    • Loss on Sale of Machinery: When a loss is incurred on the sale of machinery or equipment, that loss is also treated as a fictitious asset and is amortized over several years.

     

    Goodwill

    Goodwill is not a fictitious asset because goodwill has a realizable value and can be sold in the market. Goodwill is an intangible asset which does not have a physical existence but can be traded for monetary value. Goodwill has an indefinite life and is sold when the business is sold. Goodwill can be self-generated or purchased. Goodwill is shown as an intangible asset under the heading fixed asset in the financial statements.

     

    Patents

    Patents are intangible assets which do not have a physical existence but have realizable value and can be sold in the market. So, patents do not come under the category of fictitious assets. Patents are basically intellectual property. The purchase price of the patent is the initial purchase cost which is amortized over the useful life of the asset. Patents are shown as intangible assets under the heading fixed asset in the balance sheet of the company.

     

    Claim receivable

    Claim receivable is an asset if the claim has been authorized by the insurance company. Claim receivable has a monetary value, so does not come under the category of a fictitious asset. If the claim is not yet authorized by an insurance company, it will be shown as a footnote in the financial statements. Authorized claim receivable is shown as a current asset in the financial statement.

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A_Team
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  2. Bonnie Curious MBA (Finance)

    Yes, non-current assets are also known as fixed assets. These are long-term assets that are not intended for sale but are used by a company in its business operations. Examples of non-current assets include property, plant, and equipment, as well as intangible assets like patents and trademarks. TheRead more

    Yes, non-current assets are also known as fixed assets. These are long-term assets that are not intended for sale but are used by a company in its business operations.

    Examples of non-current assets include property, plant, and equipment, as well as intangible assets like patents and trademarks. These assets are recorded on a company’s balance sheet and are reported at their historical cost or at their fair market value, depending on the type of asset.

     

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Anushka Lalwani
Anushka Lalwani
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  2. GautamSaxena Curious .
    This answer was edited.

    Interest on drawings Drawings refer to the money withdrawn by owners/partners for personal use from the business. The drawings, in accounting terms, can be of any type. It can be cash withdrawn from business or furniture or car etc. Drawings are money or assets that are withdrawn from a company by iRead more

    Interest on drawings

    Drawings refer to the money withdrawn by owners/partners for personal use from the business. The drawings, in accounting terms, can be of any type. It can be cash withdrawn from business or furniture or car etc. Drawings are money or assets that are withdrawn from a company by its owners for personal use and must be recorded as a reduction of assets. It’s paid back to the business with some interest.

    Interest on drawings is an income for the business and reduces the capital of the owner. Interest on drawings is the amount of interest paid by the partners, calculated concerning the period for which the money was withdrawn.

    • It’s an income for the business. Hence, credited to P&L Appropriation A/c.
    • It’s an expense for the owner/partner. Therefore, debited to owner’s/partner’s capital a/c
    • Interest on drawings is charged to the partners only when there is an agreement made among the partners in this regard or if it is mentioned in the Partnership Deed.

    Formulae for Interest on drawings

    There are three formulae used for calculating the interest on drawings. They are:

    1. Simple Method: In this method, as the name suggests, the amount of interest on drawings is calculated simply for the time the amount has been utilized.

    Interest on Drawings = Amount of drawings × Rate/100 × No. of Months/12 

    2. Product Method: This method is used when-

    • Drawings are made of unequal amounts at irregular intervals of time. Then this formula is used-

    Interest on Drawings = Total of Products × Rate/100 × 1/12

    • When drawings are made of equal amounts at regular/equal intervals of time. Then interest on drawings can be calculated on the total of the amount drawn, for the average of the period applicable to the first and last installment.

    Interest on Drawings= Total amount of drawings × Rate/ 100 × Average Period/12

    Also, note-

    Average Period = (No. of months left after first drawings+ No. of months left after last drawings)/2

    Example:

    Harish withdrew equal amounts at the beginning of every month for 9 months. Total drawings amounted to ₹6,000. Calculate the interest on drawings charged if the rate was 6% p.a.

    Solution:

    Average period = (No. of months left after first drawings+ No. of months left after last drawings)/2 = (9+1)/2 = 5 months 

    Interest on Drawings = Total of drawings × Rate/100 × 5/12

                                            = ₹ 6,000 × 6/100 × 5/12
                                            = ₹ 150.

    Journal entry for interest on drawings: 

    Interest transferred to Profit & Loss A/c:

     

     

     

     

     

     

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Simerpreet
SimerpreetHelpful
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  2. Akash Kumar AK
    This answer was edited.

    Partnership Firm Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name” In simple words, A partnership is an agreRead more

    Partnership Firm

    Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name”

    In simple words, A partnership is an agreement between two or more people who comes together to run a business on a partnership deed, which is called a Partnership firm. A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called a Partnership Agreement.

    It has no separate legal entity which cannot be separated from the members. It is merely a collective name given to the individuals composing it. This means, a partnership firm cannot hold property in its name, and neither it can sue nor be sued by others.

     

    Contents of a Partnership Deed

    A Partnership Deed shall mainly include the following contents:

    1. Name of the Partnership firm
    2. Address of the Partnership firm
    3. Details of all the Partners
    4. Date of commencement of the Business
    5. The amount of capital contributed by each of the partners forming the Partnership firm
    6. The Profit sharing ratio (The Business profit shared among the partners on a ratio basis)
    7. The rate or amount of Interest on Capital & the rate or amount of Interest on drawings to each partner respectively.
    8. The salary is payable to each of the partners of the firm.
    9. The rights, duties, and power of each partner of the firm.
    10. The duration of the existence of the firm

     

    Types of Partners

    The following are the various types o partners

    1. Working partner or Active partner
    2. Sleeping partner
    3. Limited partner
    4. Partner in profit only
    5. Nominal or quasi partner
    6. Minor as a partner

     

    Types of Partnership Firms

    There are four types of partnership which are as below.

    1. General Partnership
    2. Limited Partnership
    3. Partnership at will
    4. Particular Partnership

    Essential characteristics of a partnership firm

    1. Two or More persons: There must be at least two persons to form a partnership. A person cannot enter into a partnership with himself. The maximum number of persons in a partnership should not exceed 50.
    2. Agreement between partners: There must be an agreement between the parties in a partnership. The relation of partnership arises from the formation of a contract i.e., Partnership deed.
    3. Mutual Agency: Partnership business can be carried on by all the partners or by any of them acting on behalf of the others. in simple words, every partner is an agent to the other partners and of the form. Each partner is liable for acts performed by other partners on behalf of the firm.
    4. Registration of Firm: Registration of a partnership firm is not compulsory under the Act. The only document or even an oral agreement among partners required is the ‘partnership deed’ to bring the partnership into existence.
    5. Unlimited Liability: the liability of the partners is unlimited for the debts of the firm. In case the assets of the firm are insufficient to pay the debts in full, the personal property of each partner can be attached to pay the creditors of the firm.
    6. Non-Transferability of interest: there is a restriction in the transfer of shares of profits of the partnership without the prior consent of all other partners.
    7. Sharing of profits: The profits must be distributed among the partners in an agreed ratio. Similarly, losses should be shared among the partners.
    8. Lawful Business: The business carried on by the partners must be lawful. Illegal acts such as theft, dacoity, smuggling, etc., cannot be called partnerships.
    9. Utmost good faith: A partner must observe utmost good faith in all dealings with his co-partners. He must render true accounts and make no secret profits from the business.

     

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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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Jayesh Gupta
Jayesh GuptaCurious
In: >

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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