Hello friends, how are you all?
My name is C.H.
Raygupt and on a new topic within the PGBB head, we will be
discussing today a very interesting topic, the actual cost
of the asset.
Till now we have been discussing depreciation.
Sir, depreciation is not over yet.
While depreciation is ending, we have been given a new
topic as a reward.
Because we have put a lot of effort on this topic.
We have been given a new topic in the name of actual cost.
We should be aware of the actual cost of any asset.
Till now we were talking about WDV.
We were talking about WDV.
On which were we putting depreciation?
Written down value on WDV.
But remember, two lectures ago we had also discussed how
does WDV come out? Opening WDV, actual cost of the assets
that you have bought, minus the sale price of the assets
that you have sold.
So, WDV will come out to put depreciation.
WDV will come out to put depreciation.
Now, the actual cost that you are adding, how do you
calculate the actual cost?
I had done a discussion on this topic,
I had told you my example. I had ordered a machine from
America.
The machine of Rs. 80,000 had increased to Rs. 83,00,000.
In that case, the government had said that the things that
are happening due to foreign exchange fluctuation, whether
there is a loss or a profit, consider it as a part of the
actual cost.
This was point number one.
Point number two, the related concept with this was that
till the installation of the machine, whatever expenses are
there, like transportation, have you paid any taxes on it?
Have you given any duty?
Have you taken any loan on it? Until the machine is
installed properly, consider it as a part of the actual
cost.
And claim your depreciation on that actual cost.
Now, there are some cases.
For example, I had an asset of Rs. 1 crore.
Let me take the same example,
I had imported a machine of Rs. 1,00,000.
The actual cost of that machine has increased to Rs.
83,00,000.
For example, if I use that machine for 10 years,
the depreciation will keep increasing.
In the end, after 10 years, the value of that machine will
be Rs. 1,00,000.
The value of that machine will be Rs. 1,00,000.
Now, what will I do?
Look, what does a businessman want? He has a profit.
The more he shows the profit, the more income tax he will
get.
In this country, does a person have to pay more income tax?
No one has to pay.
Everyone wants their tax to be saved.
Tax means savings.
How will the tax come down? By lowering the profit.
And how will the profit come down? By investing in that
profit.
What do I have to invest in? Depreciation.
The more depreciation I invest, the less profit I will get.
Now, what will I do? The machine of Rs.
83,00,000, which had depreciation on it, and its value was
Rs.
the value of Rs.
1,00,000 was like that,
I transferred that machine to a person I know.
Either I sold it, or I transferred it.
The machine of Rs. 1,00,000.
And later, after 6 months or a year,
I bought the same machine for Rs. 1,00,000 from the same
person.
I got the machine of Rs. 83,00,000 in the beginning.
I suffered depreciation for 10 years.
I kept on reducing my profit.
The value of Rs. 1,00,000 was left.
I gave this machine of Rs. 1,00,000 to a person I know.
And after some time, I bought the same machine for Rs.
1,00,000.
Sir, why did you buy the machine from that person for Rs.
Try to understand the reason.
The machine is worth Rs. 1,00,000.
If there is a depreciation of 15%,
I will keep on taking depreciation of Rs. 1,00,000 every
year.
I will keep on reducing my profit.
I took depreciation twice on the same machine.
Try to understand. It can be a scam.
That is why the government said that they are putting a
section on actual cost.
According to that, they are looking at what the actual cost
will be.
In this case, will the actual cost be Rs.
1 crore or Rs.
This is a confusion.
That is why the government created this section and told us
what the actual cost is.
Let's keep on reading it.
For example, let's start from here.
You have an inventory which you have converted into a
capital asset.
You are using it for business.
You will get depreciation on it.
Now, it had an inventory.
For example, I had a car business.
I used to buy second-hand cars and sell them.
I am a second-hand car dealer.
So, what will happen to the cars for me?
The cars will become my stock.
Inventory.
But I liked a car so much.
For example, there was a Lexus car.
It was LS 400.
Model was 1991.
When I researched about it, I came to know that this car
used to belong to a person named Harshad Mehta.
In some era, when he used to drive this car, he had
destroyed the entire market.
I said, sir, I will keep this car for myself.
I will not sell this car.
I bought that car.
Although, I bought it as a stock.
I will sell it later.
But when I came to know about this information while buying
it, I made that car my capital asset.
I kept it for my business purposes.
I will not sell it later.
I made it my capital asset.
So, the conversion that I did, by converting the stock, I
made it my capital asset.
What will be its actual cost?
Sir, its actual cost is, read this, it says that its actual
cost is
Sir, its actual cost is, read this, it says that its actual
cost is fair market value on the date of conversion.
Fair market value of the inventory on the date of
conversion.
For example, I bought the inventory on 22nd April. I had
kept the inventory as a stock.
But after 15 days, when I got this information, on 15th
April, its fair market value was 15 lakh rupees.
So, this 15 lakh rupees will be its actual cost.
Now, I will take the depreciation of that car on 15 lakh
rupees.
Is the point clear?
Let's move ahead.
Next.
Have you taken any asset from the gift, will, inheritance?
Alright.
You get someone's accumulated property.
In the accumulated property, you get a plant and machinery.
You get some furniture, very old.
Sir,
you get it as a gift.
Or for example, let's connect it with Bollywood.
For example, we have Mr. Bachchan.
Mr. Bachchan gifted a car to Ms.
Mercedes.
He said, when we used to do KBC in 2001, we used to go in
this car.
This car's keys are for you.
Now, for Ms.
Rekha, for example, Ms.
Rekha has a business.
Alright. So, for the business, what will be the actual cost
of that car?
On whom will she take the depreciation?
Because she got it as a gift.
So, the simple thing is, the actual cost for Mr.
Bachchan minus the depreciation Mr.
Bachchan took on it till now, the figure that will be left
after minusing it, will be its actual cost for Ms.
Any problem, sir?
Is there any problem in this?
Now, what I was telling you, the example that I gave you,
that a machine worth Rs.
83 lakhs got depreciated for Rs.
1 lakh.
In Rs.
1 crore,
I bought it again.
So that I get double depreciation.
In that case, what does the government say?
What will be its actual cost for me?
WDV at the time of sale or its reacquisition cost,
whichever is less.
Read it once, sir.
What does it say?
Reacquisition of the asset.
Where any asset which had been once, once belonged to the
SSE.
I used to have that asset at some point of time.
I imported that machine.
And it has been used by him for the purpose of business.
I used to use that machine for business purposes.
That machine used to be used in manufacturing.
And thereafter ceased to be his property.
After that, I sold that machine.
By reason of transfer or any other reason.
And what did I do later?
I reacquired it.
So what will be the actual cost, sir?
Actual cost when he first acquired, minus depreciation
allowed to the SSE.
As if the asset was the only asset in the block.
Meaning, originally, minus depreciation.
If depreciation is less than the original cost, what will
be the WDV?
WDV of which date?
When I am transferring.
Original cost, 83 lakhs.
Minus depreciation, how much I should have got? 1 lakh
rupees.
Wait, I will move this down.
It is a very nice concept.
This value will be 1 lakh rupees.
Or the actual price for which the asset is acquired by him.
83 lakhs asset, with depreciation, 1 lakh rupees.
And here, the actual price for which the asset has been
reacquired.
What was the actual price of the asset? One crore rupees.
Whichever is less. Which is less? One lakh rupees.
What did the government tell me about its value?
That your actual cost will be one lakh rupees.
We will assume that you have bought the acid again for one
crore rupees.
You have bought it to take extra depreciation.
Your intentions are wrong.
You are a person with a lot of conspiracy.
And we have crossed this point.
We make a budget.
And you are a very intelligent kind of person.
You are a sensible kind of person.
Will you fool us?
We won't let you fool us.
You will get a value of one lakh rupees.
Keep taking your depreciation for one lakh rupees.
Don't come back to this street to claim depreciation for
one crore rupees.
Useless.
This was the statement of the government.
That day I got scared.
And I decided that I won't create any conspiracy.
Was there any building?
For example, was there any building of yours?
I had a building which I used for personal purposes.
In that building, for example, I had built a gym on one
floor.
I used to party with my friends.
Later, I became a little serious about life.
And I stopped going to the gym and partying.
And I said that my coaching center will run on one floor of
this building.
And my practice will run on the other.
In that case, what will be its actual cost?
Earlier, I was using it for personal purposes.
When I was using it for personal purposes, was I getting
any depreciation in that case?
No, I wasn't.
But as soon as I brought it for business purposes, then I
become eligible that I should get depreciation.
So, in that case, I should know its actual cost.
Its actual cost is whatever was its value, minus the
depreciation of all the years till now, although it was not
allowed, but as much as it should have been notionally,
the remaining value will be my actual cost.
Is the point clear?
These are some such examples.
You can read them.
They are very simple.
Capitalization of interest, we had discussed.
If you buy a machine on interest, you will capitalize the
expenses till the time of installation.
Capitalization is a strange word.
Capitalization means its actual cost.
You will add that value.
This was the concept.
If you get any subsidy or grant from the government, you
will minus that.
Because you got the money to buy the asset.
We had discussed this point in the last 2-3 lectures.
Concept of actual cost, concept of depreciation, concept of
return on value, ends here.
I have tried to explain these concepts to you in a very
easy way.
I think you must have understood.
Depreciation becomes a lengthy and complex topic.
But we know, whatever depreciation you put in books, we
have nothing to do with it.
We simply add it back.
We will increase your profit first.
We will reduce the expenses.
We will give you depreciation expenses according to our
income tax rates.
Then we will minus the net profit.
We will give you depreciation as per income tax act.
This is the expense that you are allowed to take.
This is the mandatory expense that you have to take.
Am I clear or am I clear?
Are some points clear?
Don't worry, I will revise it further.
I will try to cover the concept of depreciation in every
lecture.
Don't worry, sir.
These points are in your notes.
You can read it from there.
Don't worry, sir.
It is said that if you want to fly, look for the sky.
And get separated from the crowd and look for your identity.
What does the crowd say?
The crowd gets scared in small things.
The government has increased the expenses.
The crowd is scared.
There is famine in the country.
The crowd is scared.
The person who has to work does not listen to the crowd.
In the crowd, the lion always rules alone.
And who are you?
Are you a wolf or a lion?
Now I leave this to you.
In which category do you consider yourself?
Do you consider yourself a part of the crowd or a part of
the lead?
Your life is in your hands.
I am coming for a few days.
You are watching the classes.
Then I will leave.
Ultimately, your life is in your hands.
But my objective is that as long as we are talking,
I will be able to explain a few things to you which will
change the direction of your life and take you in a good
direction.
If you want to fly, look for the sky.
It is not fun on the ground because there is a lot of crowd
on the ground.
Look for the sky.
Get separated from the crowd and look for your identity.
Thank you very much.