Discussion
Which of the following methods of depreciation is recognised for income tax purposes ?
Answer: C
The method recognised for income tax purposes is the written down value method.
Under section 32 of the Income Tax Act, 1961, depreciation on tangible and intangible assets is allowed on the written down value of each block of assets, at the rates prescribed in the Income Tax Rules. The rate is applied every year to the opening balance of the block as reduced by earlier depreciation.
The straight line method is allowed only as an exception, for undertakings engaged in generating or distributing power, so it is not the method generally recognised. The annuity and revaluation methods are used in accounting for particular assets such as leases and loose tools, but are not allowed for computing depreciation under the Act.
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