Computation of Depreciation in case of Succession

Introduction

If there is a succession, amalgamation or demerger, the depreciation in such cases is computed as if the succession or the amalgamation or the demerger had not taken place. The resultant depreciation is allocated to both predecessor and successor entities on a proportionate basis.

1. About

1.1. When depreciation is proptioned between predecessor and successor?

In the following cases, the successor and predecessor shall be allowed the proportionate depreciation:

(a) When a firm or sole proprietary concern is succeeded by a company.

(b) When an AOP or BOI is succeeded by a company in the course of demutualization or corporatization of a recognized stock exchange in India.

(c) When a private company or an unlisted public company is succeeded by an LLP (Limited Liability Partnership)

(d) When a person carrying on any business or profession is succeeded by any other person under Section 313

(e) When a company amalgamates with another company or when a company transfers its undertaking to another company in a scheme of demerger.

1.2. How to compute proportionate depreciation?

The proportionate depreciation to be allowed to the predecessor and successor shall be calculated in following steps.

Step 1: Calculate depreciation on tangible and intangible assets, not being goodwill of business or profession, as if the succession or amalgamation or the demerger has not taken place.

Step 2: The amount of depreciation so calculated shall be apportioned between predecessor and successor in the ratio of the number of days for which the assets were used by them.

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.