Impact of residual value under schedule II of the Companies Act, 2013

Impact of residual value under schedule II of the Companies Act, 2013 -

If a company uses Written down Value (WDV) method of depreciation and put the residual value of an assets of company, on which Schedule II of the companies act, 2013 is applied, for determining

the rate of depreciation, is zero. Then deprecation rate would come 100% or say 99.99% in the first year, it doesn’t make any difference which type of assets is using / how many years of useful life is there.

 

 

Useful life/Residual Value	Rate of deprecation under WDV as per Schedule II of the companies Act,2013 for different useful life
	5 Years	8 Years	10 Years	20 Years	40 Years
If consider the Residual Value 5% of an Assets	45.07%	31.23%	25.89%	13.91%	7.22%
If consider the Residual Value 4% of an Assets	47.47%	33.13%	27.52%	14.86%	7.73%
If consider the Residual Value 3% of an Assets	50.41%	35.49%	29.58%	16.08%	8.39%
If consider the Residual Value 2% of an Assets	54.27%	38.68%	32.38%	17.76%	9.31%
If consider the Residual Value 1% of an Assets	60.19%	43.77%	36.90%	20.56%	10.87%
If consider the Residual Value 0% of an Assets	100% or say 99.99%	100% or say 99.99%	100% or say 99.99%	100% or say 99.99%	100% or say 99.99%

Company may take nil residual value of assets for charging excess depreciation to reduce the book profit in the first year of assets when it is put to use as the requirement of disclosure for justification may be needed when the residual value exceeds 5% of the cost.

  

The impact of residual value, if we consider the zero, has vast impact to defeat the purpose of AS-6 and schedule II of the Companies Act, 2013.