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http://taxguru.in/company-law/schedule-ii-companies-act-2013-depreciation-practical-implication.html
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 life as on 01.04.2014.Date of Purchase can be found in
the Fixed Asset register or the Depreciation Chart of the Company or can also be available in the Tax Audit report
of the Company for Various Years.
Transitional effect of Schedule II
The most important and challenging aspect of Schedule II is the effect to be given in the books of account on the
date of transition, i.e. 1st April, 2014.
Reproduced below is Note 7 to Part C of Schedule II,
7. From the date this Schedule comes into effect, the carrying amount of the asset as on that date(a) Shall be depreciated over the remaining useful life of the asset as per this Schedule;
(b) After retaining the residual value, shall be recognized in the opening balance of retained earnings where the
remaining useful life of an asset is nil.
There could be two possibilities regarding the assets as on 1st April, 2014 in context of the above note:
1. Assets remaining useful life as per Schedule II is nil :
In that case, as per Note 7(b), the carrying amount has to be adjusted in the opening balance of retained earnings
in the balance sheet after retaining the residual value.
2. Assets remaining useful life is as per Schedule II is not nil:
If one reads Note 7, specifically clause (a), then one has to continue depreciating the balance as on 1st April,
2014 systematically over the remaining useful life after recalculating the rate of depreciation. In that case, no
effect of restating the carrying amount will be needed to be given. Depreciation should be provided at a rate
prescribed as under based on the remaining useful life of the Asset.
CALCULATION OF DEPRECIATION UNDER COMPANIES ACT 2013- PRACTICAL VIEW
Let us now understand everything practically
Rate of Depreciation under WDV Method:
R= (1 n^s/c) x 100
Where R = Rate of Depreciation (in %),
n = Useful life of the asset (in years)
s = Scrap value at the end of useful life of the asset
c= Cost of the asset
Accordingly WDV rates have been worked out using this formula with 5% as the salvage value of the asset and
the table for the remaining life of the asset up to 10 years is as under:O/s Life on an Asset
WDV
SLM
% of Depreciation
% of Depreciation
*
95.00
95.00
77.64
47.50
63.16
31.67
52.71
23.75
45.07
19.00
39.30
15.83
34.82
13.57
31.23
11.88
28.31
10.56
10
25.89
9.50
11
23.84
8.64
12
22.09
7.92
13
20.58
7.31
14
19.26
6.79
15
18.10
6.33
Note 7(b) as mentioned above From the date this Schedule comes into effect, the carrying amount of the asset
as on that date after retaining the residual value, shall be recognized in the opening balance of retained earnings
where the remaining useful life of an asset is nil.
Lets take another Example to understand this note:Asset: Plant & Machinery
Original Cost: Rs.100000
Useful Life and rate of Depreciation as per Old Provisions: 20 years & 13.91%
Useful Life and rate of Depreciation as per New Provisions: 15 Years & 18.10%
Expired Life: 16 years
Accumulated Depreciation for 16 years: 90896/Now the Carrying Amount as on 01.04.2014 will be 9104/- (100000-90896)
Remaining Useful life as on 01.04.2014 as per new provisions nil (15 years Expired Life)
In such a case Note 7(b) comes into picture and the entry on 01.04.2014 would be
Retained Earnings
dr. 4104
4104.
(Being Shortfall in the depreciation consequent upon change in the Useful Life of Asset Provided for after retaining
Residual Value of 5% charged against opening balance of retained earnings)
Residual Value should not be more than 5% of Cost of Asset i.e Rs. 5000 and accordingly the amount to be
adjusted shall be Rs. 4104 ( 9104-5000).
Your Views and Comments are welcome even if they are contrary
Author: Mr. Rohit Kapoor E-mail: rohitkpr1992@gmail.com
Tags: Companies Act, Companies Act 2013
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