Fusion Assets – India Tax Depreciation

Table of Contents
1. India Income Tax Block Assets Requirement..........................................................................2
1.1. Block Asset..........................................................................................................................2
1.2. Depreciation Calculation.....................................................................................................2
1.3. Retirement of Asset............................................................................................................2
2. Group Assets Function............................................................................................................3
2.1. Depreciation.......................................................................................................................3
2.2. Additions and Adjustments.................................................................................................3
2.3. Retirement of Asset............................................................................................................4
2.4. Terminal Loss or Gain.........................................................................................................4
3. Setup Requirements...............................................................................................................4
3.1. Fiscal Year...........................................................................................................................4
3.2. Depreciation and Prorate Calendar....................................................................................5
3.3. Prorate Convention.............................................................................................................6
3.4. Depreciation Method..........................................................................................................6
3.5. Asset Books.........................................................................................................................7
3.6. Category Default Rules.......................................................................................................7
3.7. Group Asset........................................................................................................................7
4. Data Conversion.....................................................................................................................8
1. India Income Tax Block Assets Requirement
This section introduces important concepts and clarifies key requirements.

1.1.Block Asset
Block asset is a Group of assets for which same rate of depreciation is prescribed
under the Income tax Act, 1961

The individual asset losses its individuality on added it in to a block or group asset
and written down value (WDV) of the block to be used to calculate depreciation.
The concept of block asset as reflected in the CBDT’s Circular dated 23.09.1988
is that once the various assets are clubbed together and become ‘block asset’
within the meaning of section 2(11), it becomes one asset. Every time, a new asset
is acquired, it is to be thrown into the common hotchpotch, i.e., block asset on
meeting the requirement of depreciation being allowable at the same rate.
Individual assets lose their identity and become an inseparable part of block asset
for the depreciation calculation.

Any new asset addition or improvements to the existing asset has to be added to
the cost of the block and depreciated prospectively.

1.2.Depreciation Calculation
The prescribed depreciation method is WDV. Assets acquired in the current fiscal
year and put to use for less than 180 days eligible for only 50% of annual
depreciation for this year.

WDV = Opening WDV + Additions during the year - Net sale Proceeds of assets
sold during the year.

1.3. Retirement of Asset

If any asset in the block is retired, no gain or loss is recognized at the asset level.
The Net sale proceeds to be adjusted to the block asset WDV.

Retirement of the Block or Terminal Loss or Gain:

Terminal gain or loss to be recognized for the block asset at the end of the fiscal
year when either there is no asset in the block or WDV of the block becomes
negative at the end of the fiscal year.

The calculation will be WDV of the block - Sales proceeds = Terminal Gain or
Loss
2. Group Assets Function
This section explains how Fusion Assets’ Group Assets feature meets the India
Localization requirements.
The Group Assets functionality is dynamic enough to handle the Indian Block
Assets requirements. It also meets similar requirements across the world like
Canadian Cost Allowance.

Block Asset = Group asset. One group asset needs to be created for each block
asset.

2.1.Depreciation
Define a Flat rate type depreciation method with NBV basis and Year End Balance
with Half Year Rule depreciable basis rule to meet the depreciation calculation
based on WDV.

Specifying Mid Year Start Date carefully for each fiscal year to calculate 50%
annual depreciation for new acquisitions. Mid Year Start Date for a Leap Year is
05th October and Mid Year Start Date for Non Leap Year is 4th October. Any new
asset with data placed in service before Mid Year Start Date will take full
depreciation for that year. Assets added on or after Mid Year Start Date will take
only 50% of depreciation for that year.

Group Asset Summary Report: Shows Opening WDV, Additions in first half
year, Additions in second half year, Adjustments, Net Sale Proceeds from
retirements, and WDV before depreciation, Depreciation, and Closing WDV for
each block or group asset.

Group Asset Detail Report: Shows Addition, Adjustment, and Retirement amount
for each member asset in a fiscal year. Use this to reconcile with group asset
summary report balances.

Note: Additional depreciation can be entered as unplanned depreciation for the group
asset.

2.2.Additions and Adjustments

New additions can be treated as the member asset of a block asset. The cost of any
new asset addition can be tracked separately for any given period and the same can
be related to its group assets.

Asset Additions Report: Lists the assets added in the given period.
 If any enhancement or improvement done to any existing asset has to treated as
cost adjustment to the member asset. While performing cost adjustment for the
member asset the Amortization Start Date must be entered correctly and based on
this date only the depreciation will be calculated prospectively. Any cost
adjustment done to the existing member asset can be tracked with respect to the
member asset to which the adjustment is done.

Cost adjustments Report: Lists the asset wise cost adjustment for given period.

2.3.Retirement of Asset
Member assets can be retired with the retirement rule of Don’t Recognize gain or
loss. Net sale proceeds adjusted to the block or group asset’s NBV and
depreciation will be calculated on the adjusted NBV.

2.4.Terminal Loss or Gain

The two possible scenarios are:
Case – 1: WDV becomes negative when sale proceeds are greater than the block
asset WDV:
On retirement of one of the member asset the WDV of the group asset may
become negative when the sale proceeds is adjusted to the group asset and
terminal gain has to be recognized even though there are other member assets exist
in that group. The ‘Recapture Excess Reserve: Yes will recognize the gain as NBV
retired gain.

Case – 2: All assets in the group are retired:

If all the member assets in the group are retired in a fiscal year then terminal gain
or loss to be recognized at the end of fiscal year. The option “Terminal Gain and
Loss: Defer recognition to the end of the fiscal year” will recognize terminal gain
or loss in the last period of the fiscal year.

3. Setup Requirements
This section explains how to setup your fiscal years, calendars, conventions,
books, category default rules to meet the block depreciation calculation
requirement.

3.1.Fiscal Year
Setup the fiscal year with correct Mid Year Start Date for each year as
shown below:
3.2.Depreciation and Prorate Calendar
Setup a yearly or quarterly depreciation and prorate calendar for your fiscal
year as per your requirement. If you use annual calendar, system will give
you an annual depreciation amount only and you need to manually
calculate quarterly amounts, if required.
3.3.Prorate Convention
Setup a half yearly prorate convention for the fiscal year as shown below:

3.4.Depreciation Method
Setup a depreciation method with all depreciation rate allowed under the
income tax act as shown below:
3.5.Tax Book
Create tax book with yearly calendar created above with the following
options enabled:
a) Allow group depreciation
b) Copy group asset additions
c) Copy additions
d) Copy adjustments
e) Copy retirements

If group asset feature is not enabled for tax book, options a) and b) will not be
displayed in book setup page. Steps to enable are:
a) Go to Setup and Maintenance
b) Search for task: 'Manage Fixed Assets Lookups'
c) Search for Lookup Type: ORA_FA_ALLOW_GROUP
d) Enter your tax book name as ‘Lookup Code’ and ‘Meaning’
e) Save and Close

3.6. Category Default Rules for Tax Book

Normally all assets in an asset category will belong to one group or block
asset. Assign the depreciation method created above with the depreciation
rate allowed for the block or group asset.

Setup default group asset rule that will be defaulted when a group asset is
added to this asset category:

Create group asset to which individual assets in this category are belongs to
and then assign it as default group asset for the category. When capitalized
assets are copied from corporate book they will be automatically became
the member of this group asset.

3.7.Group Asset
Setup group assets with the following default rules:
1. Recognize Gain or Loss: Do not recognize
2. Recapture Excess Reserve: Yes
3. Terminal Gain or Loss: Recognize at the end of year
4. Reduction Rate: 50
a. Addition: Yes
b. Financial Transaction: Select Yes, only if 50% of depreciation is
to be calculated for cost, date placed in service, and group asset
 change are effective from or after Mid Year Start Date. Select
‘No’ to take full depreciation for all adjustments.
c. Retirements: No
5. Tracking Method: None

4. Data Conversion
Data conversion for the tax book must be started only after fully completing the
associated corporate book conversion. The tax book conversion must be done in
the following sequential steps:
1. Create all required group assets in tax book using additions FBDI template.
2. Assign default group asset number for each asset category. This will allow
mass copy process to copy the capitalized asset into the correct group asset.
3. Run periodic mass copy process to copy all the capitalized assets to tax
book as member of group asset
4. Run Group Asset Detail Report and verify that all capitalized assets are
copied in to correct group asset. If any asset not assigned to group asset
assign it manually or through mass transaction
5. Update depreciation reserve for all group assets in tax book. The
depreciation reserve of the group can be calculated as cost of group asset
less closing WDV of block asset as at the end of last year
6. Run calculate depreciation process and verify that the depreciation is
correctly calculated for all group assets