Vinu: Manu, I bought some laptops for my office, and I am wondering what percentage of depreciation I should use. How do I determine the useful life of these laptops?

Manu: Good question, Vinu! The depreciation percentage depends on the accounting standards and tax laws you follow.

As per the Companies Act, 2013, the useful life of a laptop is 3 years, and the depreciation rate under the Straight Line Method (SLM) is 33.33% per year. If you use the Written Down Value (WDV) method, you calculate the depreciation based on the useful life to arrive at the WDV. There isn't a single fixed percentage for WDV under the Companies Act like there is for SLM.

As per the Income Tax Act, the prescribed depreciation rate for computers and laptops under the WDV method is 40% per year.

So, if you are following the Companies Act for financial reporting, use 33.33% (SLM). If you are following the Income Tax Act for tax computation, apply 40% (WDV).

Vinu: Got it! Now, the purchase invoice includes both laptops and software in one bill. How do I split the GST between the two? Should I allocate it based on their value?

Manu: Yes, you should split the GST proportionally based on their individual values. Here's how you do it:

Vinu: Makes sense! One last question—if I have some P&L expenses like repair costs that include GST, should the GST be recorded in the Profit & Loss account or in the Balance Sheet as a liability?

Manu: Great question! The treatment depends on whether you are eligible to claim Input Tax Credit (ITC) on that GST.

Vinu: That clears all my doubts! Thanks, Manu. Now, I can handle these accounting entries confidently.

Manu: Anytime, Vinu! Keeping your accounting clean and compliant is crucial for smooth financial management.