Members may please circulate the below text among CA trainees under them
1. Schedule II
of the Companies Act’ 2013 for calculating depreciation is applicable only on
tangible assets. For calculating Depreciation on intangible assets, the
companies have to follow the applicable accounting standards.
2. Depreciation
as per Companies Act’ 2013 depends on the useful life of various assets as
defined in the Schedule II to the Companies Act’2013.
3. Rates
of depreciation depend on the useful life of assets. No separate rates of
depreciation are defined in the Act.
4. 95% of the original cost of
the asset only has to be depreciated.
5. 5% is the residual value of
assets prescribed as per schedule II of the Companies Act’ 2013.
6. The residual value of asset is to
be calculated on the original cost of the Asset.
7. The
useful life of various assets as given in schedule II is mandatory to be
followed. If a Company does not follow such useful life then it has to submit a
technical report substantiating the useful life taken by it. Also disclosure
that a different useful life to that prescribed in the Act is used by the
Company is mandatory.
8.
Date of purchase is most important to calculate the remaining useful life of
the asset as on 01.04.2014. Existing assets are to be depreciated over the
remaining useful lives as on 01.04.2014. Date of purchase can be found in the fixed asset register or the
depreciation chart of the company and can also be available in the tax audit
report of the Company for various years.
9. If the life of the asset as on 01.04.2014 is
already more than useful life as prescribed in Schedule II, then no depreciation
can be charged after 01.04.2014. However, an amount equal to the (WDV-Residual
value) has to be written off from either the P&L A/c or from the retained
earnings of the Company in the FY 2014-15.
10. During the transitional year i.e. FY 2014-15, The Company cannot change its method of
calculating depreciation from WDV to SLM or vice-versa. Any change by the
company in the method of calculating depreciation will amount to change in
accounting policy as per AS-5. The calculation of the impact of such change on
the Statement of Profit & Loss has to be disclosed by the company in its
financial statements
11. The rate of depreciation becomes 1.5 times and 2 times of the normal rates in case of double shifts
and triple shifts respectively.
12. Charging depreciation is mandatory if the company
wants to declare dividend or make payment of
managerial remuneration. Charging depreciation is also mandatory as per the
applicable accounting standards in order to give a true and fair view.
13. As per ICAI guidance note, if the value of the
asset is upto Rs. 5000/- then it can be fully depreciated.
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