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If in any year,profits are not sufficient to give effect to depreciation,

balance is called Unabsorbed Depreciation.

It can be carry forwarded to become depreciation of nest year.

 

Effect

This can be carry forwarded for infinite number of years

unlike normal business loss which can be carry forward for 8 years 

Note:-

In next years,it can be adjusted against any head of Income

 

EXAMPLE 1

Suppose Business loss of a company is as follows

Particulars Amt
SALES 10000
less  
Expenses(Excluding Dep) 13000
Dep 2000
Total Exp 15000
   
Loss -5000
View Answer

ORDER OF SET OFF

As per the Section 72(2),

  • First Current year depreciation to be adjusted
  • Then Brought Forward Loss
  • Unabsorbed Depreciation

EXAMPLE 2

Suppose next year Company earns profit of 3000 as follows

 

Particulars Amt
SALES 20000
   
Expenses 14000
Dep 3000
Total Exp 17000
   
Profit 3000
View Answer
  1. Income Tax
  2. Set off and Carry Forward of Losses
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CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
  • Hitesh Sharma's image

    I am not understand Treatment of Unabsorbed Depreciation please elaborate this with example .one example given your application but I think that was wrong pls help me

    View answer
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