2. Overview
• Companies Act, 1956 v Companies Act, 2013
• Definition of Depreciation
• Depreciable Assets
• Methods of Depreciation
• Component based Accounting
• Transition
3. Companies Act, 1956 v 2013
Particulars
Schedule II
Companies Act, 2013
Schedule XIV
Companies Act, 1956
Definitions
Depreciation
Depreciable Amount
Useful Life
(Same as AS-6)
Not given
Basis of Depreciation Useful life regime Rate regime
Intangible Assets
AS-26
Except for BOT Assets using
Revenue model
No mention
Except for BOT Assets using
Revenue model
4. Companies Act, 1956 v 2013
Particulars
Schedule II
Companies Act, 2013
Schedule XIV
Companies Act, 1956
Shift Based Depreciation
Double Shift – Excess 50% Dep.
Triple Shift – Excess 100% Dep.
Separate rates
Component Accounting Mandatory Optional
Assets costing less than
Rs. 5,000/-
No such Concept Depreciation at 100%
Depreciation on revalued
Assets
Entire charge to Statement of
Profit & Loss
Depreciation to be provided
considering the original cost of
the asset
5. Definition : Depreciation
Depreciation is the systematic allocation of the
depreciable amount of an asset over its useful life.
Depreciation includes amortisation.
cost of an asset or other
amount substituted for
cost, less its residual value
period over which asset is
expected to be available
for use, or
number of production
units expected to be
obtained
Depreciable Amount
Useful Life
Ind As-16 : Economic Life
The definition as per Accounting
Standard - 6 is same as above.
Part - A Clause - 1
Part - A Clause - 2
6. Depreciable Assets
Assets which:
i. Are expected to be used for more than one
accounting year
ii. Have limited useful life
iii. Are held to be used in production of goods /
services, i.e. not held for sale in normal course
7. Useful Life
Determination of the useful life of a depreciable asset is a matter of
estimation.
As a general principle, the following factors shall be considered in determining the
useful life of an asset :
i. expected usage of the asset.
ii. expected physical wear and tear, which depends on operational factors
iii. technical or commercial obsolescence arising from changes or improvements in
production, or from a change in the market demand for the product or service
output of the asset
iv. legal or similar limits on the use of the asset, such as the expiry dates of related
leases.
The estimation of the useful life of the asset is a matter of
judgement based on the experience of the entity with similar assets.
8. Residual Value
AS - 6
Determination of residual value of an asset is normally a difficult
matter. If such value is considered as insignificant, it is normally
regarded as nil.
One of the bases for determining the residual value would be the
realisable value of similar assets which have reached the end of
their useful lives and have operated under conditions similar to
those in which the asset will be used after allowing for the effect of
any anticipated developments such as significant technological
changes
9. Intangible Assets
The provisions of the accounting standards applicable for the
time being in force shall apply, i.e. AS - 26.
Revenue based amortization for BOT assets (same as S-XIV 1956 Act)
For amortization of other intangible assets,
AS 26 needs to be applied.
Amendment
March 31, 2014
Amortisation of intangible assets (Toll Roads) created under
• Build, Operate and Transfer (BOT)
• Build, Own, Operate and Transfer (BOOT) or
• any other form of Public Private Partnership (PPP) route in
case of road projects.
10. Amortisation of BOT Assets
The amortisation amount or rate should ensure that the whole of the cost of the
intangible asset is amortised over the concession period. Revenue shall be reviewed at
the end of each financial year and projected revenue shall be adjusted to reflect such
changes, if any, in the estimates as will lead to the actual collection at the end of the
concession period.
𝐴𝑚𝑜𝑟𝑡𝑖𝑠𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 =
𝐴𝑚𝑜𝑟𝑡𝑖𝑠𝑎𝑡𝑖𝑜𝑛 𝐴𝑚𝑜𝑢𝑛𝑡
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐼𝑛𝑡𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐴𝑠𝑠𝑒𝑡
× 100
𝐴𝑚𝑜𝑟𝑡𝑖𝑠𝑎𝑡𝑖𝑜𝑛 𝐴𝑚𝑜𝑢𝑛𝑡 =
𝐴𝑐𝑡𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 𝐵 × 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐼𝑛𝑡𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐴𝑠𝑠𝑒𝑡 (𝐴)
𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝐼𝑛𝑡𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐴𝑠𝑠𝑒𝑡 𝑡𝑖𝑙𝑙 𝑡ℎ𝑒 𝑒𝑛𝑑 𝑜𝑓 𝑐𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 (𝐶)
Cost of Intangible Assets Cost incurred by the company in accordance with the accounting
standards
Actual Revenue for the year Actual revenue (Toll Charges) received during the accounting year
Projected Revenue from Intangible Asset Total projected revenue from the Intangible Assets as provided to
the project lender at the time of financial closure / agreement.
Part - A Clause - 3
11. Methods of Depreciation
Class
•Companies
applying Ind-AS
•Can choose
alternative
useful life and
Residual Value
•Disclose
Justification
Class
•Accounting
policies defined
by any act if
parliament
•use depreciation
rates/useful lives
and residual
values
prescribed by
the relevant
authority
Class
•Other
Companies
•Strictly follow
Schedule - II
March 27, 2014
12. Methods of Depreciation
•Useful life – not ordinarily
different
•Residual value – not more
than 5%
•Proviso:
•Can choose alternative useful
life and Residual Value
•Disclose Justification
supported by technical advise
•Accounting policies defined
by any act if parliament
•use depreciation rates/useful
lives and residual values
prescribed by the relevant
authority
Amendment
March 31, 2014
Part - BPart - A Clause - 3
13. Transition
From 1 April 2014, the carrying amount of the asset as on that
date shall be depreciated over the remaining useful life of the
asset.
Remaining Useful life - Nil
• After retaining the residual value
• Transfer book value to
Retained Earnings
(i.e. General Reserve), or
Statement of Profit & Loss
Remaining Useful life - Exists
• Depreciate over remaining useful
life
• Whether WDV or SLM basis or
Production basis
Part - C Note - 7
14. Transition
Remaining Useful life of Asset
as per Companies Act 2013 as on 01-04-2014
N I L
Net Carrying Amount –
Residual Value
Debit :
Retained Earnings
E x i s t s
Depreciate over
remaining useful life
Debit :
Profit & Loss A/c
Part - C Note - 7
15. Calculation of rate of depreciation
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
R =
(𝒄−𝒔)
𝒏
x 100
SLM
R = 𝟏 −
𝒔
𝒄
𝟏
𝒏
x 100
WDV
16. Transition Let’s take an example :
Calculate Depreciation for 5 corresponding years
Fixed Asset Plant & Machinery (Refinery) [ Part C - 5(IV)(e)(1) ]
Original Cost ` 10,00,000/-
Expired Life 5 years as on 01-04-2014
Solution :
Schedule Useful Life WDV Rate
XIV - 13.91%
II
25
Remaining : 20
Let us calculate WDV at 01-04-2014 :
Year Opening Bal Depreciation Rate Depreciation Closing Bal
2009-10 10,00,000 13.91% 1,39,100 8,60,900
2010-11 8,60,900 13.91% 1,19,751 7,41,149
2011-12 7,41,149 13.91% 1,03,094 6,38,055
2012-13 6,38,055 13.91% 88,753 5,49,302
2013-14 5,49,302 13.91% 76,408 4,72,894
WDV : ` 4,72,894/-
17. Transition Let’s take an example :
Calculate Depreciation for 5 corresponding years
Fixed Asset Plant & Machinery (Refinery) [ Part C - 5(IV)(e)(1) ]
Original Cost ` 10,00,000/-
Expired Life 5 years as on 01-04-2014
Solution :
Schedule Useful Life WDV Rate
XIV - 13.91%
II
25
Remaining : 20
WDV : ` 4,72,894/-
Let us calculate WDV rate as per Schedule II :
= 1 −
𝑠
𝑐
1
𝑛
x 100
= 1 −
50,000
4,72,894
1
20
x 100
= 1 −
20
0.11 × 100
= { 1 - 0.8938} x 100 = 10.62%
10.62%
18. Transition Let’s take an example :
Calculate Depreciation for 5 corresponding years
Fixed Asset Plant & Machinery (Refinery) [ Part C - 5(IV)(e)(1) ]
Original Cost ` 10,00,000/-
Expired Life 5 years as on 01-04-2014
Solution :
Schedule Useful Life WDV Rate
XIV - 13.91%
II
25
Remaining : 20
WDV : ` 4,72,894/- 10.62%
Hence, Depreciation as per Schedule II for corresponding 5 years :
Year Opening Bal Depreciation Rate Depreciation Closing Bal
2014-15 4,72,894 10.62% 50,230 4,22,664
2015-16 4,22,664 10.62% 44,895 3,77,769
2016-17 3,77,769 10.62% 40,126 3,37,643
2017-18 3,37,643 10.62% 35,864 3,01,780
2033-34 55,997 10.62% 5,948 50,049
19. Methods of Depreciation
Accounting Standard (AS) - 6 : Depreciation Accounting
States that
the statute governing an enterprise may provide the basis for
computation of the depreciation, and
depreciation rates prescribed under the statute are minimum
• Apply higher depreciation rate
• i.e. use lower useful life
Management’s estimate of useful life is
lower than Schedule -II
• Use either of the ratesManagement’s estimate of useful life is
higher than Schedule -II
20. Methods of Depreciation
Example
Schedule - II Management’s Estimate AS - 6
Useful
Life
(years)
Rate of Depreciation Useful
Life
(years)
Rate of Depreciation
Rate of
Depreciation Useful
Life
(years)
SLM WDV SLM WDV SLM WDV
15 6.33% 18.10% 10 9.5% 25.89% 9.5% 25.89% 10
20 4.75% 13.91% 25 3.8% 10.62% either
Jaggery Ltd. purchased a machinery. Both Schedule-II &
Management estimates are of 5% residual value.
21. Methods of Depreciation
Example Jaggery Ltd. purchased a machinery. Both Schedule-II & AS-6
prescribe 10 years as useful life
Schedule - II
Management’s
Estimate
AS - 6
Disclosure Requirement
Residual Value
(% of cost)
Residual Value
(% of cost)
Residual Value
(% of cost)
5% 2% 2% Not required
5% 10% either
Justification if
10% applied
22. Component Accounting
Where cost of a part of the asset is significant to total cost of
the asset and useful life of that part is different from the useful
life of the remaining asset, useful life of that significant part shall
be determined separately and hence, depreciation.
Ind AS - 16 Component based accounting is mandatory.
Amendment
March 31, 2014
Component based accounting is optional for F.Y. 2014-15 and
mandatory from F.Y. 2015-16
Part - C Note - 4
23. Double / Triple shift working
Under Schedule II to the 2013 Act, no separate useful lives are
prescribed for extra shift working.
Rather, it states that for the period of time, an asset is used in
double / triple shift depreciation will increase.
Double Shift Depreciation shall be 150% of actual depreciation.
Triple Shift Depreciation shall be 200% of actual depreciation.
NESD : Not Eligible for Shift Depreciation
Part - C Note - 6
24. Addition / Deletion during the F.Y.
Where during any financial year, any of the following is made to
the fixed asset :
Addition, or
Sale, or
Demolishment, or
Disbandment
In such case,
Depreciation shall be calculated on pro-rata basis.
Part - C Note - 2
25. Disclosure Requirement
AS - 6 Details of Depreciation charged, accumulated depreciation
Useful life or rates of depreciation adopted
Part - C Note - 3
Schedule - II Depreciation methods used
Useful lives of assets for computing depreciation, if they are
different from the life specified in the schedule.
26. Thank You
All the Best for Audits
Presented By:-
Deepak Ahuja
ahujadeepak@outlook.com
+91 8377 838 738
