# HOW THE RATE OF DEPRECIATION IS DERIVED UNDER WDV METHOD AS PER COMPANIES ACT 2013

HOW THE RATE OF DEPRECIATION IS DERIVED UNDER WDV METHOD AS PER COMPANIES ACT 2013?

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On 01-04-2014, WDV Stands at Rs. 686,627.00 (This is the carrying amount which para 7 of Schedule II speaks to). Hence, the balance WDV of Rs. 686,627 needs to be depreciated over the period of 11 years after giving the effect to residual value of the orignial asset [ 5% of Rs. 1250000 = Rs. 62500] Since the Company follows WDV method for depreciation, the WDV needs to be depreciated by following the WDV method over the balance useful life. Hence, the Company needs to calculate the WDV rate for the depreciation. Considering residual value of 5%, the revised WDV rate would be computed following the formula mentioned below and hence the depreciation would be calculated accordingly. Rate for depreciation as per WDV method would be computed using the following formula R= {1 – (s/c)^1/n } x 100 Where R = Rate of Depreciation (in %) n = Remaining useful life of the asset (in years) s = Scrap value at the end of useful life of the asset c= Cost of the asset/Written down value of the asset

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1. Original Cost 100 2. Original Useful Life (Co Act, 1956) 20 years 3. Depreciation rate (Co Act, 1956) 13.91 % 4. New Useful Life (Co Act, 2013) 15 years 5. Expired Life 5 years 6. Remaining Useful Life (4-5) 10 years 7. Accumulated Depreciation 52.71

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Hie Samkit, So far as your query is concerned that HOW THE RATE OF DEPRECIATION IS DERIVED UNDER WDV METHOD AS PER COMPANIES ACT 2013. Kindly find the solution done using an example: Example: PQR Limited has followed Schedule XIV rates for depreciation of a plant and machinery under WDV method by following rate of 13.91% as it runs under single shift. Date of acquisition is April 1, 2010 and cost incurred is Rs. 12,50,000 and accordingly WDV as at March 31, 2014 is Rs. 686,627. On transition to Schedule II, how same will be accounted in the books of account of PQR Limited. Solution: The Company was computing depreciation as follows upto 31-03-2014 Application of Schedule II wef 01-04-2014 In accordance with the transitional provision of Schedule II, if there is a balance useful life on the date of transition, the remaining WDV needs to be depreciated over the balance useful life period. If the Company follows the life provided in the Schedule II, the life of the assets will be 15 years and hence remaining useful life is 11 years. On 01-04-2014, WDV Stands at Rs. 686,627.00 (This is the carrying amount which para 7 of Schedule II speaks to). Hence, the balance WDV of Rs. 686,627 needs to be depreciated over the period of 11 years after giving the effect to residual value of the orignial asset [ 5% of Rs. 1250000 = Rs. 62500] Since the Company follows WDV method for depreciation, the WDV needs to be depreciated by following the WDV method over the balance useful life. Hence, the Company needs to calculate the WDV rate for the depreciation. Considering residual value of 5%, the revised WDV rate would be computed following the formula mentioned below and hence the depreciation would be calculated accordingly. Rate for depreciation as per WDV method would be computed using the following formula R= {1 – (s/c)^1/n } x 100 Where R = Rate of Depreciation (in %) n = Remaining useful life of the asset (in years) s = Scrap value at the end of useful life of the asset c= Cost of the asset/Written down value of the asset Hope your query is solved with regard to HOW THE RATE OF DEPRECIATION IS DERIVED UNDER WDV METHOD AS PER COMPANIES ACT 2013 Thanks & Regards

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Puja Agarwal commented 18 days ago

very well explained.

ankit agarwal commented 18 days ago

Whether this would be considered as change in accounting policy or the same would be covered under transition provisions

rohit agarwal commented 18 days ago

Thanks Puja for your appreciation !!

rohit agarwal commented 18 days ago

@ Ankit - Kindly note, the above treatment shall not be considered as change in accounting policy. However, if the management decides to change method from WDV to SLM method, it would be considered as change in accounting Policy. N.B. Simply because, depreciation is provided based on estimated useful life it does not mean that SLM is used.

Jitendra Suthar commented 18 days ago

nice explanation....

Calculating Depreciation under WDV method: 1. Original Cost 100 2. Original Useful Life (Co Act, 1956) 20 years 3. Depreciation rate (Co Act, 1956) 13.91 % 4. New Useful Life (Co Act, 2013) 15 years 5. Expired Life 5 years 6. Remaining Useful Life (4-5) 10 years 7. Accumulated Depreciation 52.71 Depreciation will not be calculated over 15 years. It will be calculated over 5 years only. Formula to calculate WDV rate: formula We will like to discuss how to calculate such square root: First divide 5,000/1,00,000 : 0.05 Press under root button 12 times Subtract 1 Divide by factor, here 10 Add 1 Press (* =) 12 times After these, amount 0.7412 Now, 1 – 0.7412 = .2588 i.e. 25.88 % Here, Carrying Amount = 100 – 52.71 = 47.29 Year Closing Balance 1 35.05 2 25.98 3 19.26 4 14.27 5 10.58 6 7.84 7 5.81 8 4.31 9 3.19 10 2.37

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Mamtha commented 10 days ago

i did not get 0.7412. Can you pl elaborate!