Sage-Tips

Why is a block of assets required?

Depreciation on block of assets is mainly charged for the purpose of computing Capital Gains or Business Profit or Loss. Different rates of depreciation have been prescribed under Income Tax, for different types of block of assets. Accordingly, the Written Down Value (WDV) is worked out for each block of assets.

What is block of assets in depreciation?

Block of assets is a group of assets falling within a class of assets comprising of: Tangible assets, being building, machinery, plant or furniture, Intangible assets, being know how, patents, copyrights, trade-marks, licenses, franchises or any other business or commercial rights of similar nature.

How do you calculate depreciation on a block of assets?

Calculation of Depreciation

1. WDV of an asset = Actual cost to the assesse – All depreciation actually allowed to him (included unabsorbed depreciation, if any)
2. WDV of Block of Assets.

What are the rules regarding depreciation under Income Tax Act 1961?

If any asset which has been used for more than 180 days then 50\% of depreciation is allowable in that year. For availing the benefit of deduction under depreciation, it is not mandatory that assets should be used by the assessee in the previous year.

What is depreciation and why it is charged?

We charge depreciation because most of the long-lived assets used in a business have 1) a significant cost, and 2) they will be useful only for a limited number of years. These assets are often referred to as fixed assets or plant assets, and the amounts spent are part of a corporation’s capital expenditures.

Is it mandatory to charge depreciation as per Companies Act?

Whereas depreciation rate given in IT act are used for preparing financial statements which are filed with income tax authorities for calculating income tax. Rates given in IT act are rigid and cannot be changed. Hi, if you are a company, then the depreciation is compulsory under the companies act.

How does depreciation differ from normal depreciation?

For Machinery, General Rate of Depreciation is 15\%. In addition, 20\% Depreciation will be available in the first year for Industrial Undertaking and Power Generation Distribution business. Hence, total 15\%+20\%=35\% Depreciation will be available in the first year.

Why is additional depreciation charged?

In case of any new machinery or plant (excluding ships and aircraft) acquired and installed after March 31, 2005 by an assessee who is engaged in the business of manufacture or production of any article or thing – additional depreciation under Income Tax Act of 20\% of actual cost shall be allowed. From A.Y.

What happens when a depreciable asset is sold?

Selling Depreciated Assets When you sell a depreciated asset, any profit relative to the item’s depreciated price is a capital gain. For example, if you buy a computer workstation for $2,000, depreciate it down to $800 and sell it for $1,200, you will have a $400 gain that is subject to tax.

How does depreciation help with taxes?

By charting the decrease in the value of an asset or assets, depreciation reduces the amount of taxes a company or business pays via tax deductions. The larger the depreciation expense, the lower the taxable income, and the lower a company’s tax bill.

Why is depreciation charged on assets?

Why do we depreciate assets?

Depreciation helps to tie the cost of an asset with the benefit of its use over time. In other words, the asset is put to use each year and generates revenue—the incremental expense associated with using up the asset is also recorded.

What is the concept of block of assets?

Concept of Block of Assets There is concept of block of assets, all assets of same type treated as one Block and depreciation on them calculated together. Different Block of Assets and their Rates of Depreciation are Building (5\% Residential,10\% Commercial,100\% Temporary or for Developing Infrastructure)

What are the block of assets and depreciation rates?

Concept of Block of Assets and Depreciation Rates 1 Building (5\% Residential,10\% Commercial,100\% Temporary or for Developing Infrastructure) 2 Furniture & Fittings 10\% (It includes Electrical Fittings also) 3 Intangible Assets 25\% (Patents/Trademarks/Know how/Patent/License) 4 Plant and Machinery (15\%,30\%,40\%,80\%,100\%),

Why do we charge depreciation on assets?

Why do we charge depreciation? We charge depreciation because most of the long-lived assets used in a business have 1) a significant cost, and 2) they will be useful only for a limited number of years. The matching principle (a basic underlying accounting principle) requires that the actual cost of these assets be allocated to

What is the purpose of depreciation in the income statement?

The purpose of depreciation. The purpose of depreciation is to charge to expense a portion of an asset that relates to the revenue generated by that asset. This is called the matching principle, where revenues and expenses both appear in the income statement in the same reporting period, which gives the best view…