Income tax Depreciation on sale of fixed assets has two types of calculation. FIFO and LIFO

  Order of adjustment of deletions – LIFO method used^202.5

·         Deletions are first set off against ‘additions used for 179 days or less’ and balance, against the remaining additions and opening WDV. In other words, LIFO method is used in the software. In case, you disagree, you can switch over to FIFO method. To change, go to ‘Tools’ menu ® ‘Settings’. The settings can be made for all files or current file only.

·         As per section 43(6) (c), to find out the closing WDV of any block, the opening WDV has to be adjusted by the additions and deletions of assets in the same block

·         The Act is silent regarding the order in which deletions are to be adjusted, i.e., in FIFO or LIFO method.

·         In FIFO method, deletions are first deducted from opening WDV or additions of more than 180 days. Whereas In LIFO method, deletions are first deducted from additions used for 179 days or less.

·         Amount of depreciation will vary depending on the method used and an example is given below;       

	Depreciation rate @ 50%	Value	LIFO		FIFO
			Balance after deletion	Depreciation	Balance after deletion	Depreciation
Opening WDV	Full	2,00,000	2,00,000	1,00,000	0	0
Additions used for more than 180 days	Full	2,00,000	1,00,000	50,000	2,00,000	1,00,000
Additions used for 179 days or less	Half	1,00,000	0	0	1,00,000	25,000
Deletions	-	2,00,000	-	-	-	-
Balance		3,00,000		1,50,000		1,25,000