Question 1
Block of plant and machinery: written down value, normal and additional depreciation with the 180-day rule (as set, 1961 Act, AY 2021-22)
13.75 marks
- Time to write
- About 28 minutes
From an older CBCS paper
Question
Question 1 · 13.75 marksThe block of Machinery and Plant (Rate of depreciation: 15%), made up of three plants A, B and C, had on 1 April 2020 a written down value of Rs. 20,00,000. Machine D was acquired and, at the same time, brought into use on 7 July 2020 for Rs. 3,00,000, while Machine E was both acquired and taken into use on 9 December 2020 for Rs. 4,00,000. Machines B and C were sold for a sum of Rs. 5,00,000, with expenses on sale of Rs. 50,000. Compute the following:
The block's written down value as on 31 March 2021;
The depreciation allowable under section 32 in respect of the assessment year 2021-22;
The additional depreciation allowable under section 32 in respect of the assessment year 2021-22; and
The block's written down value as on 1 April 2021.
Note that the assessee carries on the business of manufacturing of garments, that Machine D is old while Machine E is new, and that the assessee has not opted for the optional taxation scheme under section 115BAC.
Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2021-22 (previous year 2020-21), with the dates as printed.
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 2 min
- 1 Readings: days of use, expenses on sale, regime 2.2 marks 4 min
- 2 Written down value as on 31 March 2021 3 marks 5 min
- 3 Depreciation at 15% 3½ marks 6 min
- 4 Additional depreciation, with the balance carried to next year 3 marks 5 min
- 5 Written down value as on 1 April 2021 2 marks 4 min
- Check: arithmetic, units (₹, %), final answer underlined 2 min
Try it first. About 28 minutes for 13.75 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.
- Regime. The assessee has not opted for section 115BAC, so additional depreciation, which section 115BAC(2)(iii) would deny (Finance Act, 2020, section 53), is available. The option counts only if exercised in the prescribed manner: with the section 139(1) return by a person with no business or professional income, or on or before the section 139(1) due date by one who has such income (section 115BAC(5)).
- (a) and (d). The written down value as on 31 March 2021 is read as the value of the block at the end of the year before the year's depreciation, the figure the rate is applied to; the value as on 1 April 2021 is that figure less the depreciation allowed, the opening value for 2021-22.
- Expenses on sale (₹50,000). The written down value is reduced by the moneys payable for the assets sold (section 43(6)(c)), not by those moneys net of expenses, so the ₹50,000 does not enter the block. Since the block does not cease and its value stays positive, there is no capital gain under section 50 against which the expenses could be deducted.
- Days of use. Machine D was put to use on 7 July 2020, 268 days before the year's end: 180 days or more. Machine E was put to use on 9 December 2020, 113 days before the year's end: less than 180 days.
(a) Written down value as on 31 March 2021
| Particulars | Rs. |
|---|---|
| Written down value of the block (A, B and C) on 1 April 2020 | 20,00,000 |
| Add: Machine D (acquired and put to use on 7 July 2020) | 3,00,000 |
| Add: Machine E (acquired and put to use on 9 December 2020) | 4,00,000 |
| 27,00,000 | |
| Less: moneys payable for Machines B and C sold | 5,00,000 |
| Written down value as on 31 March 2021 | 22,00,000 |
(b) Depreciation under section 32
Depreciation is 15% of the written down value of the block (section 32(1)(ii)). An asset acquired in the year and put to use for less than 180 days gets half the rate, 7.5% (second proviso to section 32(1)). Machine E's cost (₹4,00,000) is still within the block after the sale proceeds are set against the rest, so it takes 7.5% and the rest of the block 15%:
| Particulars | Rs. |
|---|---|
| On ₹18,00,000 (₹22,00,000 − Machine E's ₹4,00,000) at 15% | 2,70,000 |
| On Machine E, ₹4,00,000 at 7.5% | 30,000 |
| Depreciation under section 32(1)(ii) | 3,00,000 |
A manufacturer (garments) is allowed a further 20% of the actual cost of new machinery acquired and installed in the year (section 32(1)(iia)). Machine D does not qualify: it is old, and machinery used by any other person before its installation by the assessee is excluded (proviso to section 32(1)(iia)). Machine E qualifies, but was put to use for less than 180 days, so only half is allowed this year (second proviso to section 32(1)):
| Particulars | Rs. |
|---|---|
| Machine E, 20% of ₹4,00,000 | 80,000 |
| Allowed for assessment year 2021-22: 50% | 40,000 |
The balance of ₹40,000 is allowed in the next previous year, 2021-22 (third proviso to section 32(1)).
Total depreciation for assessment year 2021-22: ₹3,00,000 + ₹40,000 = ₹3,40,000.
(d) Written down value as on 1 April 2021
| Particulars | Rs. |
|---|---|
| Written down value as on 31 March 2021 | 22,00,000 |
| Less: depreciation under section 32(1)(ii) | 3,00,000 |
| Less: additional depreciation under section 32(1)(iia) | 40,000 |
| Written down value as on 1 April 2021 | 18,60,000 |
The written down value is the actual cost less all depreciation actually allowed (section 43(6)(c)(ii)), additional depreciation included.
Where the 13.75 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Readings: days of use, expenses on sale, regime | 2.25 |
| 2 | Written down value as on 31 March 2021 | 3 |
| 3 | Depreciation at 15% and 7.5% | 3.5 |
| 4 | Additional depreciation, with the balance carried to next year | 3 |
| 5 | Written down value as on 1 April 2021 | 2 |
| Total | 13.75 |
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