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

Sharma Engineering Works, a resident firm, has a block of plant and machinery (15% rate) with an opening written down value of Rs 8,00,000 for tax year 2026-27. It bought a machine for Rs 4,00,000 on 10 June 2026 and put it to use immediately. It bought another machine for Rs 2,00,000 on 5 December 2026 and used it from that date. No asset was sold. What is the depreciation allowable for the block for the tax year?

Depreciation is Rs 1,95,000. The opening block value and the June addition get the full 15% (Rs 1,80,000), while the December machine, used under 180 days, gets half the rate (Rs 15,000). Charging full depreciation on every addition would wrongly give Rs 2,10,000.

  1. ARs 1,95,000Correct
  2. BRs 2,10,000
  3. CRs 1,80,000
  4. DRs 1,20,000

Explanation

Depreciation at the full 15% applies to the opening WDV and to additions used for 180 days or more: 15% of (8,00,000 + 4,00,000) = 1,80,000. The December machine was used for fewer than 180 days, so only half the rate applies: 7.5% of 2,00,000 = 15,000. Total is 1,95,000. Rs 2,10,000 wrongly gives the full rate on all additions.

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