looking for help in IAS-12

[kamranACA]

I must say the members that please don't taunt others in this way since every one can have deficiencies and no one is perfect.


Zia,

If you will not calculate the tax depreciation (as per rates given in Third Schedule to ITO, 2001) you will be making loss by paying more tax. Let me clarify it in detail.

Try to understand one thing; if you will charge depreciation in accounts, you will have to add back such depreciation while calculating your tax liability/taxable income and deduct the tax depreciation using tax rates of depreciation.

Now, if you have not charged depreciation in accounts (say of Rs 20), you will certainly not add back anything to profit (profit of say Rs 100) for calculating taxable income/profit, and the Profit figure will remain unaffected (ie Rs 100).

………….……Had you charged depreciation in accounts, the net profit would have been reported at Rs 80 and while calculating taxable income you must have added the Depreciation of Rs 20 back to this profit resulting taxable profit of Rs 100.……………..

So, whether or not you charge depreciation in accounts, the profit to be taken for tax purpose (before getting benefit of tax depreciation) will remain unchanged.

Now, you have one allowance/deduction/reduction benefit against such profit that is Tax Depreciation (say Rs 15) that should also be calculated and deducted from the above figure of profit (Rs. 100) to find out exact taxable profit/income (ie Rs 85). If you will not do it you will be paying tax on excessive amount of profit resulting in loss to your entity.

So, you must deduct the Tax Depreciation while calculating your taxable income in either case regardless of what you are doing in accounts.


Notwithstanding above, as per financial reporting requirements you must have to charge depreciation on the VEHICLE in your books of account as well. There is only one relaxation in case of Plant and machinery where IAS-16 allows following units of production method and where depreciation is charged based only on output of units produced keeping in view total units producing capacity of the plant and machinery.

In all other cases you have to charge depreciation from the date asset is available for intended use. In your case the vehicle is available for utilization right after it has been procured and registered. So, there is no way out to avoid charging of depreciation in the books of account.

Regards,