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    Schedule-II to Companies Act, 2013

    All are aware that the Companies Act, 2013, came in to fore, as an updated mixed bag of regulations, to cater the business needs of the changing economic environment thereby providing sustainable growth and better corporate governance. The Act has roped in many new concepts, thereby making the enactment to be at par with International Standards, and also to be in co-relation with the Accounting Standards.

    In this context, the provisions relating to depreciation have been listed in Schedule II to the Companies Act, 2013, thereby replacing the provisions of the Schedule XIV to the Companies Act, 1956. The provisions of Schedule II have been applicable from the FY 2014 – 2015.

    Through this Article an effort is being made to list out the changes/provisions, so as to enable the co-professionals and Corporates, to understand better for easy implementation.

    Computation of Depreciation based on Useful Life:

    Unlike under the Companies Act, 1956, wherein depreciation rates have been prescribed on rate basis/shift wise, the concept of depreciation on the basis of Useful life of the asset, has been brought in.Apart from this, the provisions relating to Amortisation in respect of an Intangible Asset, which hitherto were not available in Schedule XIV to the Companies Act, 1956, have also been listed in Schedule-II.

    Structure of the Schedule:

    Clause 1 of Part-A, defines depreciation, depreciable amount and the concept of useful life of an Asset.

    Sub-Clause ii of Clause 3 of Part-A, deals with the Amortisation of Toll Roads, created under ‘Build, Operate and Transfer’, ‘Build, Own, Operate and Transfer’ or any other form of public private partnership route in case of road projects, and for other intangible assets, the provisions of the accounting standards applicable for the time being in force shall apply.

    Part-B of Schedule II deals with the non-applicability of the useful life or residual value in respect of a particular asset, and applicability of the rates as notified for accounting purposes by a Regulatory Authority constituted under an Act of Parliament or by the Central Government, in respect of such asset.

    Part-C of Schedule-II, prescribes the useful life of various Tangible Assets, in respect of companies, not covered under Part-B. The schedule also details the list of assets, for which No Extra Shift Depreciation [NESD]is permitted/allowed.

    Notes to the Schedule: Notes detail the various aspects in the process of calculating depreciation, the basis on which depreciation is to be computed for extra shift in respect of an Asset.

    [For the purpose of Schedule-II, Depreciation includes Amortisation.]

     

    Aspect of difference:

    The following table compares the provisions under both the Acts, for the basic elements of calculating depreciation:

    Sl.

    No.

    Particulars/Aspect

    Under CA, 2013

    Under CA, 1956

    1

    Useful life

    Useful life for various assets has

    been specified in Part C of

    Schedule II.

    Concept not available/

    Not Applicable

    2

    Residual value

    The residual value of an asset

    shall not be more than 5% of the

    original cost of the asset.

    Concept not available/

    Not Applicable

    3

    Cost of asset

    As per accounting

    standards(AS)i.e., AS-10,AS-6,AS11

    Concept not available/

    Not Applicable

    4

    Rate of depreciation

    No     rates    of    depreciation,

    prescribed. Depreciable amount

    to be arrived basing on the useful

    life of the asset

    Asset wise depreciation rates

    are    specified  for   both

    methods i.e.,  Straight  Line

    Method and Written Down

    Valuemethod in Schedule XIV,

    for 1,     2 and    3   Shifts  of

    operation.

    5

    Method of Depreciation

    Schedule-II, as such does not

    prescribe    any   method   of

    depreciation,  and depreciation

    amount to be arrived basing on

    1

    the useful life of the asset.

    The Company may either

    adopt Straight Line Method or

    Written Down Value Method,

    in computing the depreciation

    based on the rates prescribed

    in the Schedule.

    6

    Monetary limit for 100%

    depreciation

    No reference / Limit

    Assets whose actual cost

    does not exceed Rs.5000/-,

    shall be depreciated at the

    rate of 100%

    1In Para-33 of the Application guide on the provisions of Schedule II to the Companies Act, 2013, issued by the ICAI, a formula has been prescribed for existing companies, who have been using WDV as the method of depreciation, to calculate a new rate of depreciation to depreciate the asset over their remaining useful life using the following formula as per WDV method:

    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.

    Concepts and Aspects discussed along with illustrations:

    As we all are aware that Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

    2

    Depreciable amount of an asset = Cost of an asset or [other amount substituted for cost] less its residual value.

    Depreciation for the year = (Cost of the asset or substitute cost – Residual value)/Useful life.

    1. Cost of the asset:

    Cost of the asset is arrived by applying the relevant accounting standards i.e., AS-10,AS-11,AS-16,AS-26 any other if applicable ,as issue by the Institute of chartered accountants of India

    1. Useful Life: The useful life of an asset is the:

    è period over which an asset is expected to be available for use by an entity; or

    è number of production or similar units expected to be obtained from the asset by the entity.

    Useful lives of Tangible Assets are listed out in Part-C of Schedule II.

    1. Residual Value:

    Residual value of an Asset is the expected value of the Asset after its useful life, and as per Schedule-II, the residual value of an asset shall not be more than 5 % of the original cost of the asset.

    The Difference in calculating Depreciation under the Companies Act, 2013 and 1956, is explained below in the form of a example:

    Sl.

    No.

    Particulars

    As per Companies Act, 2013

    As per Companies Act, 2013

    Depreciation as

    per SLM

    Depreciation as

    per WDV

    Depreciation as

    per SLM

    Depreciation as

    per WDV

    A

    Date of purchase - Projecting

    equipment of film exhibiting concerns

    01-04-2010

    01-04-2010

    01-04-2010

    01-04-2010

    B

    Cost of the asset

    10,00,000

    10,00,000

    10,00,000

    10,00,000

    C

    Rate of depreciation

    NA

    #65%

    7.07%

    20%

    D

    Residual value

    Nil

    1*

    Nil

    Nil

    E

    Useful life

    13years

    13years

    Not specified

    Not specified

    F

    Amount of depreciation for the year

    [b x c] (except for column 1)

    76,923

    6,50,000

    70,700

    2,00,000

    G

    Net carrying value

    9,23,077

    3,50,000

    9,29,300

    8,00,000

    2The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account of exchange fluctuations, price adjustments, and changes in duties or similar factors. Substituted cost also includes value assigned as per revaluation in accordance with Accounting Standard 10(AS 10)

    #WDV: R= {1 – (1 /10,00,000)^1/13 } x 100

    *While calculating the rate of depreciation under WDV method residual value can never be Zero because the rates will 100% when zero is substituted in formula.

     

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