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CA Intermediate · Taxation · Profits and Gains of Business or Profession

Meera Textiles, a proprietary business, purchased a machine for Rs 3,00,000 on 10 June 2026 by paying Rs 1,50,000 in cash and the balance by account payee cheque on the same day. The machine was put to use immediately. Which statement about the depreciation base for the tax year 2026-27 is correct?

Only Rs 1,50,000 qualifies for depreciation. Cash payment exceeding Rs 10,000 for acquiring an asset is excluded from its actual cost, so only the account payee cheque portion forms the depreciable base, while the asset itself remains eligible.

  1. AThe full Rs 3,00,000 is eligible for depreciation as the cheque payment is valid
  2. BOnly Rs 1,50,000 is eligible, since cash payment above Rs 10,000 is excluded from the actual costCorrect
  3. CDepreciation is not allowed because part payment was in cash
  4. DThe cash portion is allowed as depreciation only in the next tax year

Explanation

Under the Act, expenditure for acquiring an asset paid in cash exceeding Rs 10,000 is ignored in computing actual cost for depreciation. The cash Rs 1,50,000 is excluded, so the depreciable base is the Rs 1,50,000 paid by cheque. Option A ignores this rule. The asset still qualifies, so total denial is wrong.

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