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

Rajan Engineering has a block of plant and machinery eligible for depreciation at 15%. On 1 April 2026 the opening written down value of the block was Rs 10,00,000. During tax year 2026-27 it bought a machine for Rs 4,00,000 on 5 August 2026 and another for Rs 2,00,000 on 20 January 2027, both put to use immediately. A machine was sold on 1 December 2026 for Rs 1,00,000. Ignoring additional depreciation and assuming the block continues to exist, what is the depreciation for the tax year?

Depreciation is Rs 2,10,000. Full 15% applies to Rs 13,00,000 (opening plus the August purchase less sale proceeds), giving Rs 1,95,000. The January machine of Rs 2,00,000 was used under 180 days, so only 7.5% (Rs 15,000) applies. Together this is Rs 2,10,000.

  1. ARs 2,10,000Correct
  2. BRs 2,25,000
  3. CRs 1,95,000
  4. DRs 2,40,000

Explanation

Assets used for less than 180 days attract half the rate. Block value for full rate = 10,00,000 + 4,00,000 - 1,00,000 = Rs 13,00,000, giving 15% = Rs 1,95,000. The Rs 2,00,000 machine was used for fewer than 180 days, so 7.5% = Rs 15,000. Total is Rs 2,10,000. Rs 2,40,000 comes from adding the sale proceeds instead of deducting them, and Rs 2,25,000 comes from using the full rate on the late addition.

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