ICDS V- Tangible Fixed Assets - SBSandCo€¦ · notify Income Computation Disclosure Standards. 10...

ICDS V- Tangible Fixed Assets

P Sai Varun 2nd Year Intern

Ms SBS and Company LLP saivarunpsbsandcocom

040-4018 3366 (119)

By

SBS Hyderabad 17th November 2018

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Introduction of ICDS

Applicability of ICDS

Scope

Identification of tangible assets

Components of Actual cost

Special cases

Inclusions and Exclusions

Self-constructed tangible fixed asset

Non-monetary consideration

Improvements and Repairs

Joint ownership and Joint cost

Transitional provisions

Differences between ICDS V AS-10 and Ind-AS-16

Topics to be covered


Section 145(2) of the Income Tax Act1961(ldquothe Actrdquo) grants power to Central Government to notify Income Computation Disclosure Standards

10 ICDS were notified by Central Government on 31stMarch2015 However they are made applicable from the Assessment Year 2017 -18

ICDS are not for maintenance of books of accounts they are only for purpose of income

Computation amp

Disclosure (Notification SO892(E) dated 31032015)

Note In the case of conflict between the provisions of the Act and the ICDS the provisions of the Act shall prevail to that extent



Assessee having income from PGBP

or other sources

Mercantile system of accounting amp

Individuals or HUF

Tax audit not applicable

Not Applicable

Tax audit applicable

Applicable

Any other assessee

Applicable

Cash system of accounting

Not applicable


following


The main object of this ICDS is that an expenditure incurred in connection with a Tangible Fixed Asset is to be capitalised or is to be treated as a revenue expenditure

ICDS V covers assets being land building machinery plant or furniture held with the intention of being used for the purpose of producing or providing goods or services and not held for sale in the normal course of business

Since this ICDS deals with tangible fixed assets intangible assets are not covered under this ICDS for determination of actual cost of asset

Scope


Asset for the purpose of administrative purposes is covered under the ICDS

Asset for the rental purposes

Scope

such rental income is taxable

under

Income from Business or other

sources

Covered under this ICDS

Income from House property

Not covered under this ICDS


No monetary threshold is prescribed for an asset to be recognised as tangible fixed asset It is

recognised if asset is beneficial for an entity which lasts over period of time

Stand-by equipment and servicing equipment are to be capitalised and spares are to be

capitalised if they are expected to be used for a long period



The actual cost of an acquired tangible fixed asset shall comprise of

Purchase price

Import duties and other taxes (which are not subsequently recovered)

Any other expense which is directly attributable for making asset ready to use

Borrowing cost which is recognised as per ICDS- IX

Note Any trade discounts need to reduced from actual cost



Actual cost in case of certain circumstances like merger amalgamation re-acquisition gift etc need to recognised as per section 43(1) of the Act

In case of demerger or amalgamation ndash cost carrying by amalgamating company

In case of gift ndash cost to previous owner less depreciation

In case purchased through cash ndash not considered for actual cost

In case earlier used for scientific research ndash cost less availed deduction us 35 of the Act

Stock converted to asset- FMV on date of conversion

Previously owned such asset and re-acquired ndash actual cost when previously purchased less depreciation

Grant or reimbursement from government ndash reduced from actual cost

For reference

Special cases

Section 43


Actual cost doesnrsquot include initial estimate of dismantling cost and cost for removing the item and restoring the site

In case payment done for the asset acquired beyond the normal credit terms then interest paid for such credit is added to asset

If a subsidy or grant receivable by an assessee from government which is related to acquisition of an asset then the grant shall be reduced from the written down value of block of assets to which such asset belongs to in accordance with ICDS-VII Government grants



If an asset is acquired from country outside India then exchange fluctuation araised while payment to concerned party is to be increased or decreased from actual cost of the asset in accordance with ICDS-VI Effects of changes in foreign exchange rates

Administrative and general overhead are need to be included in the cost of asset if such expenditure is directly attributable to asset or bringing it to its working condition

Expenditure on test runs experimental production and any other expenditure related to such asset till the asset has been ready for commercial production or captive consumption need to be capitalised

If asset used in business after it ceases to be used for scientific research the amount deduction claimed under section 35 (1)(iv) of the Act [ie 100 deduction in respect of capital expenditure for scientific research] need to be decreased from Actual cost ie Nil



In case of self-constructed tangible fixed asset all the expenditure directly attributable for construction of such fixed asset need to be capitalised

Note Any inter department or inter branch profits need to be eliminated from cost of such asset



If an asset is acquired in exchange of other asset then fair value of asset so acquired shall be actual cost of asset acquired

And same has to be followed if asset belonging to one block of asset is exchanged with an asset belonging to another block



An Expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is added to the actual cost Current repairs are need to be allowed as revenue expenditure and not to added to the cost of asset

An addition or extension which becomes integral part of asset is added to its actual cost and if it capable of being used even after such asset is disposed off and has separate identity then such addition need be recognised as a separate asset



In case asset is owned by two or more persons then

its actual cost depreciation and written down value

need to be bifurcated to them based on proportion

of ownership

When several assets are acquired for a consolidated

price then cost need to be proportioned to all assets

on fair basis



For an asset

which is purchased or constructed after 01-04-2016 and

the acquisition or construction of which commenced on or before the 31-03-2016 but not completed even after 01-04-2016 should be recognised as per this ICDS

Note In recognition of actual cost of an asset which is acquired before 01-04-2016 actual cost considered in the earlier years is to be taken into account



Sno Points of comparison ICDS-V Tangible Fixed Assets

AS- 10 Ind AS-16

1 Stand-by equipment and servicing equipment

Directly to be recognised as asset

They are recognised only if they meet recognition criteria


2 initial estimate of the costs of dismantling and removing the item

Doesnrsquot contain any such requirement

Need to be recognised as the cost of asset


3 Payment of interest due to payment beyond normal credit terms

Interest need to be recognised as cost

Interest shall be capitalised only if it satisfies AS-16

Interest shall be capitalised only if it satisfies Ind AS-23

4 Government grant Grant received shall be directly reduced from actual cost of asset in accordance with ICDS VII

Same as ICDS grant shall be reduced from cost of asset

Ind AS -16 doesnrsquot permits grant to be directly reduced from cost of asset

Differences


Sno Points of comparison ICDS-V Tangible Fixed Assets AS- 10 Ind AS-16

5 Revaluation of tangible fixed assets and change in method of depreciation

There is no such provision Deals with revaluation and change in method of depreciation in detail

Deals with revaluation and change in method of depreciation in detail

6 Non-monetary consideration

the fair value of the asset so acquired shall be its actual cost

FMV of the asset given or FMV of asset acquired which is clearly evident

the fair value of the asset so acquired and if fair value is not measurable then carrying amount of asset given up

7 Subsequent expenditure Recognised if increases future benefits beyond its previously assessed standard of performance

Recognised if meets recognition criteria


Differences


An assessee(company) Business income of Rs9000000 during the year assessee purchased a machinery worth Rs1500000 and its estimated cost of dismantling in future is Rs200000

Explanation

Cost of asset recognised as per Accounting standards is Rs1700000

And depreciation accounted is Rs113333(Life is 15 years)

And as per Income tax act depreciation 15 is Rs255000

As per ICDS cost of asset is Rs1500000 and accordingly depreciation is Rs225000

Dismantling cost is treated as expenditure when it actually expended

Example


Increase in profit Rs30000

Example

Particulars Amount in Rs

Profits from Business 9000000

Gross Total Income 9000000

Tax on Total income 25 2250000


Profit 9000000

Increase in profit due to ICDS

30000



As per normal calculations As per ICDS

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Scope



Special cases







Differences between ICDS V AS-10 and Ind-AS-16

Topics to be covered





Computation amp






or other sources


Individuals or HUF


Not Applicable


Applicable

Any other assessee

Applicable


Not applicable


following





Scope




Scope


under


sources












Purchase price















For reference

Special cases

Section 43




























of ownership



on fair basis



For an asset







AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At






Computation amp






or other sources


Individuals or HUF


Not Applicable


Applicable

Any other assessee

Applicable


Not applicable


following





Scope




Scope


under


sources












Purchase price















For reference

Special cases

Section 43




























of ownership



on fair basis



For an asset







AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At




or other sources


Individuals or HUF


Not Applicable


Applicable

Any other assessee

Applicable


Not applicable


following





Scope




Scope


under


sources












Purchase price















For reference

Special cases

Section 43




























of ownership



on fair basis



For an asset







AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At






Scope




Scope


under


sources












Purchase price















For reference

Special cases

Section 43




























of ownership



on fair basis



For an asset







AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At





Scope


under


sources












Purchase price















For reference

Special cases

Section 43




























of ownership



on fair basis



For an asset







AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At










Purchase price















For reference

Special cases

Section 43




























of ownership



on fair basis



For an asset







AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At











For reference

Special cases

Section 43




























of ownership



on fair basis



For an asset







AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At





























of ownership



on fair basis



For an asset







AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At



For an asset







AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At




AS- 10 Ind AS-16
















Differences













Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At














Differences



Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At




Explanation






Example



Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At




Example






Profit 9000000


30000




wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At


wwwsbsandcocomwiki




Thank you



+040-40183366(119)

SBS Hyderabad

At


ICDS V- Tangible Fixed Assets - SBSandCo€¦ · notify Income Computation Disclosure Standards. 10...

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