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Computation of depreciation, actual cost and WDV Video Lecture | Income Tax for assessment (Inter Level) - Taxation
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FAQs on Computation of depreciation, actual cost and WDV Video Lecture - Income Tax for assessment (Inter Level) - Taxation
| 1. What is depreciation and how is it computed? |  |
Ans. Depreciation is the systematic allocation of the cost of an asset over its useful life. It represents the decrease in value of an asset due to wear and tear, obsolescence, or other factors. The computation of depreciation typically involves dividing the difference between the asset's actual cost and its estimated salvage value by its useful life.
| 2. What is the actual cost of an asset? | |
Ans. The actual cost of an asset refers to the total cost incurred to acquire or produce the asset. It includes all expenses directly related to the purchase or construction of the asset, such as purchase price, transportation costs, installation fees, and any other costs necessary to bring the asset into its working condition.
| 3. How is WDV (Written Down Value) calculated for taxation purposes? | |
Ans. WDV, also known as the book value or carrying value, is the value of an asset after accounting for accumulated depreciation. For taxation purposes, WDV is calculated by subtracting the total accumulated depreciation from the asset's original cost. This adjusted value is used to determine the taxable amount for depreciation deductions or capital gains/losses when the asset is sold.
| 4. Are there different methods to compute depreciation? | |
Ans. Yes, there are various methods to compute depreciation, including the straight-line method, declining balance method, units of production method, and sum-of-years-digits method. Each method has its own assumptions and formula for allocating the cost of an asset over its useful life. The choice of method depends on factors such as the nature of the asset, its expected pattern of use, and applicable accounting or tax regulations.
| 5. How does depreciation impact taxation? | |
Ans. Depreciation affects taxation by reducing the taxable income of a business or individual. Depreciation expenses are deductible expenses that can be subtracted from the revenue generated by the asset. This reduces the taxable income and, subsequently, the tax liability. However, different tax jurisdictions may have specific rules and limitations regarding depreciation deductions, so it is important to understand and comply with the applicable tax laws.
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Nov 16, 2024 Last updated |
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