Sequence the steps for computing depreciation in income from Business and Profession: (A) The written down value of each block as on the last day of the previous year (B) Find the value of each block at the beginning of each year (C) The money received along with scrap value, if any in respect of the same blocks, which are sold/discarded during the year (D) Assets required during the year in the respective blocks to which the new assets belong Choose the correct answer from the options given below:
(B), (D), (C), (A)
Understanding Depreciation Calculation for Business Income
When computing income from Business and Profession, depreciation on assets used for the business is an important deduction. In India, depreciation is generally calculated based on the Written Down Value (WDV) method for blocks of assets, as per the provisions of the Income Tax Act. A 'block of assets' is a group of assets falling within a class of assets for which the same rate of depreciation is prescribed.
The question asks for the correct sequence of steps involved in computing depreciation for income from Business and Profession. Let's look at the provided steps:
- (A) The written down value of each block as on the last day of the previous year
- (B) Find the value of each block at the beginning of each year
- (C) The money received along with scrap value, if any in respect of the same blocks, which are sold/discarded during the year
- (D) Assets required during the year in the respective blocks to which the new assets belong
Sequencing the Steps for Depreciation Computation
To compute depreciation using the WDV method for a block of assets, you need to determine the value of the block at the end of the year before applying the depreciation rate. This value is calculated by starting with the opening WDV, adding the cost of assets acquired during the year, and subtracting the sale proceeds from assets sold or discarded during the year. The final step is determining the closing WDV after deducting the calculated depreciation.
Let's arrange the given steps in a logical flow for computing depreciation:
- Start with the opening balance of the block of assets. This is the Written Down Value (WDV) of the block at the beginning of the financial year. This corresponds to step (B).
- Add the cost of any new assets purchased and added to this block during the year. This increases the value of the block. This corresponds to step (D).
- Subtract the money received from any assets belonging to this block that were sold, discarded, or demolished during the year. This reduces the value of the block. This corresponds to step (C).
- The result of the above calculation (B + D - C) gives the WDV of the block before calculating depreciation for the current year. Depreciation is then calculated on this value (with adjustments for assets held for less than 180 days). The WDV at the end of the year, after deducting depreciation, is the closing WDV, which becomes the opening WDV for the next year. Step (A) describes the WDV on the last day of the previous year (which is the opening WDV for the current year) or the WDV on the last day of the current year (which is the closing WDV). Given the sequence, (A) represents the final WDV after the computation process for the current year is complete, making it the WDV as on the last day of the current year.
Therefore, the correct sequence of steps to compute depreciation is:
(B) → (D) → (C) → (A)
Let's represent this calculation conceptually:
| Step | Description | Value |
|---|---|---|
| (B) | Opening WDV of the block | $$ \text{WDV}_{\text{Opening}} $$ |
| (D) | Add: Cost of assets acquired during the year | $$ + \text{Acquisitions} $$ |
| (C) | Less: Sale proceeds from assets sold/discarded | $$ - \text{Sales Proceeds} $$ |
| Value before Depreciation | $$ \text{Value}_{\text{Before Dep}} = \text{WDV}_{\text{Opening}} + \text{Acquisitions} - \text{Sales Proceeds} $$ | |
| Less: Depreciation for the year (calculated on $$ \text{Value}_{\text{Before Dep}} $$ with adjustments) | $$ - \text{Depreciation} $$ | |
| (A) | Closing WDV of the block (WDV as on the last day of the previous year for the next year) | $$ \text{WDV}_{\text{Closing}} = \text{Value}_{\text{Before Dep}} - \text{Depreciation} $$ |
The sequence (B), (D), (C), (A) correctly outlines the process: starting with the opening balance (B), adding additions (D), subtracting reductions due to sales/disposals (C) to arrive at the value upon which depreciation is calculated, and concluding with the resulting closing WDV (A).
Revision Table: Key Aspects of Depreciation Calculation
| Aspect | Description |
|---|---|
| Method | Written Down Value (WDV) method for blocks of assets. |
| Block of Assets | Grouping of assets with the same depreciation rate. |
| Opening WDV | WDV of the block at the beginning of the previous year (Step B). |
| Additions | Cost of assets acquired during the year (Step D). |
| Reductions | Money received from assets sold/discarded (Step C). |
| Value Before Dep. | Opening WDV + Additions - Reductions. |
| Depreciation Rate | Prescribed percentage applied to the Value Before Depreciation (with adjustments for period of use). |
| Closing WDV | Value Before Dep. - Depreciation (Step A represents this value for the current year). |
Additional Information on Business Depreciation
Understanding the nuances of depreciation calculation under the Income Tax Act is crucial for businesses. Here are some additional points:
- Rates of Depreciation: Different classes of assets (like buildings, machinery, furniture) have different prescribed depreciation rates.
- Assets Acquired During the Year: If an asset is acquired and used for less than 180 days in the previous year, only 50% of the normal depreciation rate is allowed on its cost. If used for 180 days or more, the full rate applies.
- Sale of Assets: If the sale proceeds from assets in a block exceed the opening WDV plus additions, the excess is treated as short-term capital gains. If the block ceases to exist and the WDV is positive, the remaining WDV is allowed as terminal depreciation (a business loss). If the block exists but the value before depreciation becomes zero or negative due to sales, no depreciation is allowed, but any excess sales proceeds result in capital gains.
- Intangible Assets: Know-how, patents, copyrights, trademarks, licenses, or franchises are also eligible for depreciation at a specific rate (usually 25% WDV).
- Full Value of Consideration: Step (C) mentions "money received along with scrap value". The Income Tax Act refers to the "moneys payable" or the "scrap value" in case of assets sold, discarded, or demolished.
Mastering the correct sequence and rules for computing depreciation helps in accurate calculation of taxable business income.
Important Questions from Miscellaneous
Read the given figure and find the region representing persons who are educated and employed but not confirmed in job.
The magazine in which Mahatma Gandhi mentioned what he wanted the Constitution to do is:
Which gas shields the surface of the earth from ultraviolet radiation from the sun?
Which event is marked as an Intangible Cultural Heritage of Humanity by UNESCO?
Who has been conferred with the rank of the Commander of the Order of the British Empire in 2018?
