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 |
In this case,total loss is 5000 out of which 2000 is called unabsorbed depreciation and remaining 3000 is actual business loss
This 3000 loss can be carry forwarded for infinite number of years
while remaining 2000 can be carry forward for 8 years
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 |
In this case,out of this profit of 3000,first of all,business loss will be adjusted of 2000
Then balance unabsorbed depreciation will be adjusted
Particulars | Amt |
Profit for Year | 3000 |
Less | |
Adjust with profit of Next Year | 2000 |
Balance Profit | 1000 |
Less | |
Adjust with Unabsorbed Depreciation | 3000 |
Balance Unabsorbed Dep | -2000 |
-ea-