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veenzar (Advocate)     31 October 2008

Computation of depreciation

Three private limited companies and one proprietorship firm engaged in the same line of business decides to merge into one as per the provision of the Part IX of the Companies Act, 1956. They had formed a partnership on the first day of January, 2008 by transferring all the fixed assets(only fixed assets) of the firm at the net book value as on 01.04.2007. At the time of making the partnership they had included some spouses of the managing directors of the companies into the partnership firm to make the number 7. As the parties are having credit facilities with different banks, the process will be taking some time, during the course of which the partnership firm carries on the business. Now the queries are as under: 1. Since the fixed assets are transferred on 01.01.2008, what will be eligibility for depreciation in the hands of the individuals/companies and the partnership firm. a) Whether the proprietorship/companies can charge full depreciatin on the assets transferred as the same is put to use for more than 180 days. b) Whether it is possible for the newly formed partnership firm not to charge depreciation. c) Or in which other way the depreciation can be claimed by the entities. 2. Whether the capital gains will be attracted in this case, when the assets are transferred to the partnership firm and later on the partnership firm is converted into a company as per the provisions of Part IX of the Companies Act, 1956. 3. Even though the assets are transferred to the partnership firm, the original owners uses the fixed assets for their business in their individual capacity. Whether the partnership firm is required to change any rent/service charges for usage of the assets legally owned by the firm. A detailed clarification in this regard will be highly appreciated. Thanks in advance.


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