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CHANGE OF DEPRECIATION METHOD

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 mayank murarka asked almost 3 years ago

Suppose a company want to change method of depreciation from WDV to SLM & currently shows assets in the books on WDV. Please suggest the treatment with example & journal entries. Also suggest whether the differential depreciation (difference of depreciation calculated in WDV & SLM) to be shown below the line or above the line in Statement of Profit & loss i.e. whether AS-5 is applicable or not? Whether the asset to be shown at Original cost alongwith provison for depreciation or same can be continued to be shown in the books at WDV?

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3 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Anil Dhawan answered over 2 years ago

As far as your question is concerned with regard to change of depreciation method which states that - Suppose a company want to change method of depreciation from WDV to SLM & currently shows assets in the books on WDV. Please suggest the treatment with example & whether AS-5 is applicable or not? There are two parts or section of the question - one which deals with accounting treatment and second applicability of AS - 5. Let us discuss the issue one by one. First of all, you must be aware that wef 01.04.2014 Companies are required to charge depreciation based on useful live pursuant to Schedule II to the Companies Act 2013 rather than on depreciation which was provided based on rates prescribed under Schedule XIV to the erstwhile Companies Act 1956. Further, transitional provision Schedule II to the Companies Act 2013 requires the carrying amount of the asset (i.e. WDV) as 01-04-2014 to be depreciated over the remaining useful life of the asset after retaining the residual value, may be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil. So, If a company was calculating depreciation charge as per WDV method till 31st March 2014 under the provision of Companies Act, 1956 and wants to shift to SLM method w.e.f 1st April 2014 (or vice versa), then the same would not be covered under transitional provisions as provided in Schedule II of the Companies Act, 2013. It would be clear cut considered as change of accounting policy as per AS 5.

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Open uri20170510 32134 1c996lj?1494421732 Anil answered over 2 years ago

There are two parts or section of the question - one which deals with accounting treatment and second applicability of AS - 5. Let us discuss the issue one by one. First of all, you must be aware that wef 01.04.2014 Companies are required to charge depreciation based on useful live pursuant to Schedule II to the Companies Act 2013 rather than on depreciation which was provided based on rates prescribed under Schedule XIV to the erstwhile Companies Act 1956. Further, transitional provision Schedule II to the Companies Act 2013 requires the carrying amount of the asset (i.e. WDV) as 01-04-2014 to be depreciated over the remaining useful life of the asset after retaining the residual value, may be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil. So, If a company was calculating depreciation charge as per WDV method till 31st March 2014 under the provision of Companies Act, 1956 and wants to shift to SLM method w.e.f 1st April 2014 (or vice versa), then the same would not be covered under transitional provisions as provided in Schedule II of the Companies Act, 2013. It would be clear cut considered as change of accounting policy as per AS 5. Since, transitional provisional is not applicable, depreciation would be charged to Statement of Profit and Loss and adjustment with Retained earnings is not available.

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Open uri20170510 32134 1ue0f38?1494421710 rohit agarwal answered almost 3 years ago

Hi Mayank, As far as your question is concerned with regard to change of depreciation method which states that - Suppose a company want to change method of depreciation from WDV to SLM & currently shows assets in the books on WDV. Please suggest the treatment with example & whether AS-5 is applicable or not? There are two parts or section of the question - one which deals with accounting treatment and second applicability of AS - 5. Let us discuss the issue one by one. First of all, you must be aware that wef 01.04.2014 Companies are required to charge depreciation based on useful live pursuant to Schedule II to the Companies Act 2013 rather than on depreciation which was provided based on rates prescribed under Schedule XIV to the erstwhile Companies Act 1956. Further, transitional provision Schedule II to the Companies Act 2013 requires the carrying amount of the asset (i.e. WDV) as 01-04-2014 to be depreciated over the remaining useful life of the asset after retaining the residual value, may be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil. So, If a company was calculating depreciation charge as per WDV method till 31st March 2014 under the provision of Companies Act, 1956 and wants to shift to SLM method w.e.f 1st April 2014 (or vice versa), then the same would not be covered under transitional provisions as provided in Schedule II of the Companies Act, 2013. It would be clear cut considered as change of accounting policy as per AS 5. Since, transitional provisional is not applicable, depreciation would be charged to Statement of Profit and Loss and adjustment with Retained earnings is not available.

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