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What is unabsorbed depreciation ? how its treatment different
in taxation vis-a-accounting?
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Answer Posted / bhupender janmejai
Take a simple example -
In P/L a/c you have G.P./ Income etc. on credit side as Rs.
50,000. Depreciation during the year is say 10,000. Now
you will simply debit the depreciation and your net profit
will become 40,000 chargeable to tax.
However if the credit side remains same as Rs. 50,000 but
the depreciation is 60,000 then what will happen?
In accounting terms it will simply show a loss of 10,000 to
the firm. However in taxation terms this 10,000 will be
known as unabsorbed depreciation.
Now the assessee can carry forward this 10,000 to next years
and can setoff it against future profits. For details you
should read SET-OFF & CARRY FORWARD chapters along with
topic of depreciation in b&p
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MEANING OF RED HERRITING
Alex’s Trial Balance at 31 December 2015 Dr (BWP) Cr (BWP) Capital 18 240 Bank overdraft 3 000 Fixtures and fittings 14 100 Provision for depreciation-fixtures and fittings 8 800 Inventory 14 200 Trade receivables 12 300 Trade payables 9 900 Revenue 110 000 Purchases 51 000 Discount received 1 800 Wages and salaries 26 000 Sundry expenses 34 000 Discount allowed 620 217 540 ======= 86 420 ======== Required: i Prepare the corrected trial balance at 31 December 2015. (7 marks) ii Show any difference you find as a balance on an appropriate account.
