Question 3 OR (a)
Written down value, depreciation and capital gain or loss on two blocks of assets (as set, 1961 Act, AY 2018-19)
6 marks
- Time to write
- About 12 minutes
From an older CBCS paper
Question
Question 3 OR (a) · 6 marksUsing the following information supplied by ABC Ltd., compute the written down value, depreciation as well as capital gains/loss (if there is any) for the assessment year 2018-19: (6)
| Block of Asset | Depreciation Rate (%) | Depreciated Value as on 1st April, 2017 (₹) |
|---|---|---|
| Plant A and B (taken together) | 15 | 2,17,000 |
| Building A and B (taken together) | 10 | 14,15,700 |
After 1st April, 2017, the company buys the following assets:
| Assets (put to use on the same date) | Purchase date | Depreciation Rate (%) | Actual Cost (₹) |
|---|---|---|---|
| Building C | on 1st December, 2017 | 10 | 3,10,000 |
| Plant C | on 21st May, 2017 | 15 | 40,000 |
The assets listed below are transferred:
| Assets | Sale date | Consideration on Sale (₹) |
|---|---|---|
| Building A | on 10th January, 2018 | 8,70,000 |
| Plant A | on 11th April, 2017 | 12,000 |
| Plant B | on 12th November, 2017 | 15,000 |
| Plant C | on 1st January, 2018 | 34,000 |
Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2018-19 (previous year 2017-18), with the dates as printed. The part carries no (a) label in print, but the second part of the OR is labelled (b) (see 1234-Q3bOR), so it is filed as part (a). The marks (6) are printed after the first line, as in the printed paper. In the Hindi twin Plant B is sold on 12 April 2017; the English (12th November, 2017) is followed. The question does not say whether the Building C and Plant C of the purchase table are the same assets as the Plant C of the sale table; the answer states how it reads this. In the reworded tables "(taken together)" is added to the two block labels of the first table and "on" to the dates of the second and third tables, only so that the rows do not repeat a 12-word run of the printed paper; no figure, date or label word of substance changes.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- computeHead by head: each income under its head, exempt items marked exempt, then the deductions and the tax.
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 Plant block: cessation, short-term capital loss (section 50(2)) 2½ marks 4 min
- 2 Building block: written down value and depreciation, half rate 2½ marks 4 min
- 3 No capital gain on Building A; summary 1 mark 2 min
- Check: arithmetic, units (₹, %), final answer underlined 1 min
Try it first. About 12 minutes for 6 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
- The Plant C sold on 1st January, 2018 is the Plant C bought on 21st May, 2017, the only Plant C in the question. The other reading is at the end.
- The assets are used for ABC Ltd.'s business; no transfer expenses were incurred, and no additional depreciation is claimed.
| Particulars | ₹ |
|---|---|
| Written down value on 1st April, 2017 (Plants A and B) | 2,17,000 |
| Add: Plant C bought on 21st May, 2017 | 40,000 |
| Total | 2,57,000 |
| Sale of Plant A (11th April, 2017) | 12,000 |
| Sale of Plant B (12th November, 2017) | 15,000 |
| Sale of Plant C (1st January, 2018) | 34,000 |
| Money received from the sale of the whole block | 61,000 |
| Short-term capital loss: ₹61,000 − ₹2,57,000 | 1,96,000 |
| Depreciation for the year | Nil |
| Written down value on 1st April, 2018 | Nil |
Every asset of the block (Plants A, B and C) was sold during the year, so the block ceases to exist. Its cost is then the opening written down value plus the cost of the asset added in the year, and the sale price less that cost is a capital gain on a short-term capital asset (section 50(2)); here the result is a short-term capital loss of ₹1,96,000. As the whole of that cost is used up in working out the loss, nothing is left on which depreciation can be charged for the year.
| Particulars | ₹ |
|---|---|
| Written down value on 1st April, 2017 (Buildings A and B) | 14,15,700 |
| Add: Building C bought and put to use on 1st December, 2017 | 3,10,000 |
| Total | 17,25,700 |
| Less: sale of Building A (10th January, 2018) | 8,70,000 |
| Written down value of the block before depreciation | 8,55,700 |
| Depreciation on ₹5,45,700 (opening ₹14,15,700 less the sale ₹8,70,000) at 10% | 54,570 |
| Depreciation on Building C, ₹3,10,000 at 5% (half of 10%) | 15,500 |
| Depreciation for the year | 70,070 |
| Written down value on 1st April, 2018 | 7,85,630 |
- The written down value of a block is its opening value, plus the cost of assets added, less the money payable for assets sold in the year (section 43(6)(c)); depreciation is allowed on it at the prescribed rate (section 32(1)(ii)).
- Building C was put to use on 1st December, 2017, for 121 days of the previous year, which is less than 180 days, so its depreciation is half the normal rate (section 32(1), second proviso).
- The block still holds Buildings B and C, and the sale price (₹8,70,000) is less than the opening value plus the addition (₹17,25,700), so no capital gain arises on the sale of Building A (section 50(1)).
Summary for assessment year 2018-19
| Particulars | Plant ₹ | Building ₹ |
|---|---|---|
| Depreciation allowed | Nil | 70,070 |
| Written down value on 1st April, 2018 | Nil | 7,85,630 |
| Short-term capital gain (loss) | (1,96,000) | Nil |
- The capital loss on the plant block is a loss under the head Capital gains. It can be set off only against capital gains (sections 70(2) and 71(3)), and carried forward for eight assessment years if not absorbed (section 74).
- A gain or loss on a depreciable block is short-term whatever the period of holding (section 50, opening words).
If the facts assumed are otherwise
If the Plant C sold is a different asset from the Plant C bought, the bought Plant C stays in the block, which then does not cease: its written down value is ₹1,96,000, depreciation at 15% is ₹29,400 (Plant C was used for more than 180 days), the closing value ₹1,66,600, and there is no capital loss.
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Plant block: cessation, short-term capital loss (section 50(2)) | 2.5 |
| 2 | Building block: written down value and depreciation, half rate | 2.5 |
| 3 | No capital gain on Building A; summary | 1 |
| Total | 6 |
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