Join Your Exam WhatsApp group to get regular news, updates & study materials HOW TO JOIN

Gist of Depreciation under Companies Act 2013

Gist of Depreciation under Companies Act 2013

Provision as per Schedule II of Companies Act, 2013

  • Depreciation = allocation of depreciable amount + over useful life.
  • Depreciable amount = Cost of Asset – Residual Value.
  • Useful life = Expected period of use or no. of production etc.
  • Depreciation includes amortization.
  • For other companies – useful life and residual value shall not be different than prescribed in part C normally. If deviation is there, disclosure with respect to same has to be made supported by technical advice.

For Companies constituted under Act – useful life and residual value will be as per the relevant act.
For intangible assets – AS as applicable shall apply.

  • Residual Value – generally not more than 5 % of the original cost of the asset.
  • Carrying amount of the asset:-
  • Depreciate over the remaining useful life of the asset.
  • Remaining useful life is nil, recognized in the opening balance of retained earnings.
  • Cost of part asset is significant – different useful life shall be determined separately.
  • If asset is used for double shift – Depreciation will be increased by 50% for that period and in case of triple shift, 100% for that period.

Gist of Depreciation under Companies Act 2013

Application guide to Schedule II by ICAI – Depreciation
Applicability

  • All financial statements prepared on or after 01st April, 2014.

Shift to Useful life

  • As per AS-6, Depreciable assets are:-
  • Expected use is beyond an accounting period.
  • Limited useful life.
  • Use in production of goods or services, or on rental to others or for administrative purposes.
  • Not for sale in ordinary course.
  • As per AS-6, rates prescribed under the act are minimum. If management estimate higher rate than the higher rate should be applied.
  • For amortization of intangible assets (toll roads) created under BOT, revenue based amortization is allowed. For other intangible assets, AS-26 needs to applied.

Transitional provisions under Schedule II

  • Carrying amount of the asset as on 01/04/2015
  • if useful life of assets remains, depreciate over the remaining useful life
  • if useful life of assets is nil, value after retaining the residual value be recognized in the opening balance of retained earnings or charged to P&L A/c.
  • Companies will have to reassess the useful life of its existing assets.
  • If company is using SLM method currently, then depreciate the asset equally over the new useful life of the asset.
  • If company is using WDV method currently, then a new rate of depreciation will be calculated as follows:

R = {1-(s/c)^1/n}x100
Where R = Rate of depreciation (%)
n = Remaining useful life of asset (in years)
s = Scrap value at the end of useful life of asset
c = Cost of the asset / WDV of the asset

Gist of Depreciation under Companies Act 2013

At CAKART www.cakart.in you will get everything that you need to be successful in your CA CS CMA exam – India’s best faculty video classes (online or in pen drive) most popular books of best authors (ebooks hard copies) best scanners and all exam related information and notifications.Visit www.cakart.in and chat with our counsellors any time. We are happy to help you make successful in your exams.

.

www.cakart.in.

Click Here to download FREE CA CS CMA Text Books.

Leave a comment

Your email address will not be published. Required fields are marked *