Compliance with Law

Compliance with Law

Beyond tax regulations, there are specific legislations that indirectly compel certain business organisations — particularly corporate enterprises — to provide depreciation on fixed assets. The most prominent of these is the Companies Act, which requires companies to charge depreciation on their fixed assets before they can declare dividends or present a true and fair view of their financial position.

The legal requirement arises because depreciation is not optional under company law. A company that fails to charge depreciation is not complying with the statutory provisions that govern its financial reporting. This means that even if a business does not need depreciation for tax purposes (for example, if it has no taxable profit), it may still be legally required to charge depreciation for the purpose of preparing its financial statements in accordance with the law.

The key point is that depreciation serves a dual compliance role: it satisfies tax regulations (under the Income Tax Act) and also fulfils the requirements of corporate legislation (such as the Companies Act). For corporate enterprises, ignoring depreciation is not merely an accounting oversight — it is a breach of legal obligations.