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Depreciation as per companies act doubt for writting off

Rahul Rai


The question is related to Companies act and Accounting Standards.

company wrongly included some assets in Fixed Asset Register(FAR) before 3 years.

And was providing depreciation for 3 years. This year company realised that Assets were wrongly included so company has decided to write off the assets from FAR.


What should be done as per Comapnies act and Accounting Standard point.

Sudeep Prakash


As per AS we can correct it by writing back the depreciation part & trns the amount to prior period expenses/income account. Companies act says that AS to followed , so writeback depreciation part to income side & whole amount trns to Prior Year exp account.

So that effect hits to Deffered tax also . (B'coz already asset value or Dep value is already taken in Deffered Tax Calculation) 

Again MAT gets affected due to the change in Depreciation.


CA.Sundeep  Kamath


The best approach would be to separate your doubts into two halfs.

A. The accounting pratice followed under The Companies Act, 1956 and the Accounting Standards followed regarding treatment of the transaction and resulting issues thereof.

B. The Tax angle and resulting issues resulting thereof


The first one goes this way, As the assets were wrongly included, the assets needs to be taken off from the fixed register as well as the records by inserting a column adjustments / deletions and be rectified.

However the point to note would be what is the quantam and whether the quatam of adjustment will be material enough for auditor to make an ascertainment whether the true and fair view is to be quantified due to prior period items. The Accounting standard mention this as a prior period claim due to omission or error and not a deliberate motive.  As such this line item if material will be shown below the line i,e Profit before tax , interest and Prior period items in the P & L prepared for the financial year.

Though Deferred tax asset / credit will change due to depreciation effect being calculated for difference in rate as per companies Act and Income tax Act, the question would be is the amounts material enough to be reported or disclosed as line item in the financials prepared.

B. Moving on to Income Tax Act Implication, the Income tax Act, recognises only one sort / method of depreciation i,e the Written Down value Method, and such will not impact the tax liability. Even assets less than 5000 rupees written off at 100% under companies Act, will get depreciation as per Income tax Act, and the tax liability will be nil.

Hope i have answered your ambugity and you will have a clear idea about the issues.....! Please reply back in case you have further doubts, will be glad to answer those...!