List of important points to remember while
calculating Depreciation as per Companies Act, 2013:
Ø Schedule II of the Companies Act, 2013 for
calculating depreciation is applicable only on tangible assets. For calculating
amortization of intangible assets, the companies have to follow the
applicable accounting standard, AS 26.
Ø 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.
Ø Rates of depreciation are derived from the
useful life of assets. No separate rates of depreciation are defined in the
Act.
Ø 5% is the residual value of assets
prescribed as per schedule II of the Companies Act, 2013.
Accordingly, 95% of the original cost of the asset only has to be
depreciated.
Ø The residual value of asset is to be
calculated on the original cost of the Asset.
Ø 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 to be made in the financial
statements.
Ø 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.
It 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.
Ø 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. Further, an amount equal to
the depreciable amount has to be charged to either the Statement of
P&L or from the opening retained earnings of the Company in the FY 2014-15.
Ø The Company cannot change its method of
calculating depreciation from WDV to SLM or vice-versa in the name of
transitional provisions. 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.
Ø The rate of depreciation becomes 1.5 times
& 2 times of the normal rates in case of double shifts and triple shifts
respectively.
Ø Charging depreciation is mandatory if the
company wants to declare dividend or for payment of managerial remuneration.
Charging depreciation is also mandatory as per the applicable accounting standards in order to give a true & fair view.
Charging depreciation is also mandatory as per the applicable accounting standards in order to give a true & fair view.
Ø As per Application Guide issued by ICAI,
if the value of the asset is upto Rs. 5000/-, then it can be fully depreciated
in view of the materiality.
Bibliography:
1. www.onlinefiling.in
2. www.google.com
3. other websites
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