Depreciation Journal Entry: Section 43(3) B.Com Sem 1 Guide

Why Getting Depreciation Right Will Save You Marks — Right Now

You open your Financial Accounting paper and the very first practical question is a depreciation problem asking you to pass journal entries. You know the concept vaguely, but your mind blanks on the exact debit-credit logic. This happens to most first-year B.Com students, and it costs easy marks. This guide fixes that — step by step, with real numbers, so you walk into that exam hall fully prepared.

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What Is Depreciation and Why Does Section 43(3) Matter?

Depreciation is the systematic reduction in the value of a fixed asset over its useful life. Think of a laptop your college buys for ₹60,000 — it won't be worth ₹60,000 after three years. That fall in value is depreciation.

Now, why does Section 43(3) of the Income Tax Act, 1961 come into your B.Com Semester 1 syllabus? Because Section 43(3) defines what a "block of assets" is for tax purposes. Under this section, assets of the same class (say, all plant and machinery) are grouped together into a single block, and depreciation is calculated on the Written Down Value (WDV) of that entire block — not asset by asset.

This is different from how depreciation works in pure Financial Accounting (where you track each asset separately), but your syllabus expects you to understand both approaches and know how to pass journal entries for each.

Quick definition — Block of Assets: A group of assets belonging to the same class (e.g., buildings, furniture, machinery) for which the same depreciation rate applies under the Income Tax Act.

The official depreciation rates under the Income Tax Act are published by the Central Board of Direct Taxes (CBDT). You can verify the current rate schedule at incometax.gov.in.

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Depreciation Rates You Need to Know for 2026 Exams

Here is a reference table of the most commonly tested depreciation rates under the Income Tax Act, 1961 (WDV method, as per Schedule II and CBDT rules). These appear regularly in B.Com Semester 1 Financial Accounting papers.

Block of Asset	Common Examples	WDV Rate (Income Tax)
Buildings (residential)	Staff quarters	5%
Buildings (non-residential)	Office premises	10%
Furniture & fittings	Tables, chairs	10%
Plant & machinery (general)	Factory equipment	15%
Computers & software	Laptops, desktops	40%
Motor vehicles (not transport)	Cars	15%
Books (annual publications)	Journals, annuals	100%

Note for students: For Financial Accounting (as opposed to tax), your university may ask you to apply the Straight Line Method (SLM) at rates specified in the Companies Act, 2013 Schedule II. Always read the question carefully — it will tell you which method and which rate to use.

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How to Write the Journal Entry for Depreciation — Step by Step

This is the part most textbooks rush through. Let's slow down.

The Golden Rule for Depreciation Entries

Depreciation is an expense (it reduces profit) and it reduces the value of the asset. So:

• Debit → Depreciation Account (expense increases)
• Credit → Asset Account or Provision for Depreciation Account

There are two common formats your syllabus may require:

Format 1 — Direct reduction in Asset Account

Depreciation A/c         Dr.   ₹X
    To Asset A/c                     ₹X
(Being depreciation charged on [asset name] for the year)

At year-end, Depreciation A/c is closed by transferring to Profit & Loss A/c:

Profit & Loss A/c        Dr.   ₹X
    To Depreciation A/c              ₹X
(Being depreciation transferred to P&L A/c)

Format 2 — Using Provision for Depreciation Account (more common in companies)

Depreciation A/c         Dr.   ₹X
    To Provision for Depreciation A/c    ₹X
(Being depreciation provided on [asset name])

The asset stays at its original cost in the books; the provision account accumulates the total depreciation charged so far.

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Worked Example 1 — Straight Line Method (SLM)

Question: A business purchases machinery on 1 April 2024 for ₹1,20,000. Residual (scrap) value is ₹20,000. Useful life is 5 years. Pass journal entries for depreciation for the year ending 31 March 2025 using SLM.

Step 1 — Calculate annual depreciation

Annual Depreciation = (Cost − Residual Value) ÷ Useful Life = (₹1,20,000 − ₹20,000) ÷ 5 = ₹1,00,000 ÷ 5 = ₹20,000 per year

Step 2 — Journal Entry (31 March 2025)

Depreciation A/c              Dr.   ₹20,000
    To Machinery A/c                         ₹20,000
(Being depreciation charged on machinery @ SLM for year ending 31.03.2025)

Profit & Loss A/c             Dr.   ₹20,000
    To Depreciation A/c                      ₹20,000
(Being depreciation transferred to P&L A/c)

Step 3 — Ledger balance of Machinery after entry

Opening balance: ₹1,20,000 Less: Depreciation: ₹20,000 Closing balance: ₹1,00,000

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Worked Example 2 — Written Down Value (WDV) Method Under Section 43(3)

Question: A firm has a block of plant and machinery with an opening WDV of ₹2,00,000 on 1 April 2024. It purchases additional machinery worth ₹50,000 on 1 October 2024. The applicable depreciation rate under the Income Tax Act is 15%. Calculate depreciation and pass the journal entry for the year ending 31 March 2025.

Step 1 — Identify the block value and apply the 180-day rule

Opening WDV = ₹2,00,000 New asset purchased 1 October 2024 = ₹50,000

The new machine is in use from 1 October 2024 to 31 March 2025 — that is 182 days, which is just over 180 days, so it qualifies for full depreciation.

Depreciation on opening block: ₹2,00,000 × 15% = ₹30,000 Depreciation on new asset: ₹50,000 × 15% = ₹7,500

Total Depreciation = ₹37,500

The "less than 180 days = 50% depreciation" rule comes from the proviso to Rule 5 of the Income Tax Rules, 1962. If the new machine had been purchased on 15 November 2024, it would have been in use for fewer than 180 days and would attract only 50% of the normal rate. Always count the days in your exam question before calculating.

Step 2 — Journal Entry

Depreciation A/c                  Dr.   ₹37,500
    To Plant & Machinery A/c                     ₹37,500
(Being depreciation charged on block of plant & machinery @ 15% WDV for year ending 31.03.2025)

Profit & Loss A/c                 Dr.   ₹37,500
    To Depreciation A/c                          ₹37,500
(Being depreciation transferred to P&L A/c)

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Common Mistakes B.Com Sem 1 Students Make (and How to Avoid Them)

• Forgetting to transfer Depreciation A/c to P&L A/c. The journal entry is incomplete without this second step. You will lose marks.
• Confusing WDV with SLM. WDV applies depreciation on the reducing balance each year. SLM applies the same fixed amount each year. Read the question — it will specify.
• Ignoring the narration. Indian university examiners specifically look for the narration in brackets. Always write it. A blank narration line can cost you half a mark per entry.
• Using the wrong rate. The Income Tax WDV rates (Section 43(3) block) and the Companies Act SLM rates (Schedule II) are different. Confirm which one the question asks for.
• Not accounting for part-year ownership. If an asset is bought mid-year under SLM in Financial Accounting, charge depreciation proportionally (months owned ÷ 12). Under Income Tax WDV, use the 180-day rule.

Want to test yourself on these concepts right now? Try a few rapid-fire questions at SuperAccountant's free quiz — it takes about 10 minutes and tells you exactly which topics need more attention.

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Quick Revision Checklist Before Your Exam

Use this the night before your Financial Accounting paper:

• I can state the definition of depreciation and name two methods (SLM, WDV)
• I know what a "block of assets" means under Section 43(3) of the Income Tax Act, 1961
• I can calculate SLM depreciation using the formula: (Cost − Residual Value) ÷ Useful Life
• I can calculate WDV depreciation: Opening WDV × Rate%
• I can pass the two-step journal entry: Depreciation A/c Dr → Asset/Provision A/c Cr, then P&L A/c Dr → Depreciation A/c Cr
• I remember the 180-day rule for part-year assets under Income Tax
• I always write a narration in brackets after each journal entry
• I know the key depreciation rates: computers 40%, machinery 15%, furniture 10%, buildings 5–10%

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Putting It All Together

Depreciation journal entries are one of those topics where understanding the why makes the how obvious. An asset loses value → that loss is an expense → expenses are debited. The asset (or its provision account) is credited to reflect the reduced value. Section 43(3) of the Income Tax Act groups similar assets into blocks and applies WDV rates to the whole group — a smarter, exam-relevant layer on top of the basic Financial Accounting concept.

Once you have the two-step entry pattern locked in — and you practise with real numbers like the examples above — this topic becomes a reliable source of marks rather than a stress point. Work through at least five different problems using both SLM and WDV before your exam. Vary the dates so you practise the part-year calculation too.

If you want structured practice beyond this guide, SuperAccountant's cohort programme covers the entire B.Com Semester 1 Financial Accounting syllabus with weekly problem sets and doubt-clearing sessions — check it out at https://app.superaccountant.in/en/cohort.

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If you're not sure where to start, take SuperAccountant's free 10-minute quiz at https://app.superaccountant.in/en/quiz — it places you at the exact phase of our curriculum that matches your current level, so you stop revising what you already know.