Companies Act -1956 Companies Act 2013 D.P. Shah D. Shah &
Associates 2
Slide 3
While discussing the new provisions under Companies Act 2013
regarding preparation of Financial statements, we will cover Books
of accounts Depreciation Financial statements Consolidated
Financial Statements Directors Report D.P. Shah D. Shah &
Associates 3
Slide 4
Key Provisions Books of Accounts D.P. Shah D. Shah &
Associates4
Slide 5
Provisions relating to Accounts Companies Act 1956Companies Act
2013 Section 2(8) provides definition of `book and paper and `book
or paper whereas `books of accounts have been defined in Section
209 of the Act.paper Section 2(12) defines `book and paper and
`book or paper whereas `books of accounts have been defined in
Section 2(13) of the Act. Section 2(17) defines Financial year.
Section 2(41) defines financial year. Section 209 to Section 223
governs provisions relating to accounts. Section 128 to Section 137
governs provisions relating to accounts Revised Schedule VI
provides for general instructions for preparation of Balance sheet
and Statement of Profit and loss. Schedule III provides general
instructions for preparation of Balance sheet and Statement of
profit and loss of a Company D.P. Shah D. Shah &
Associates5
Slide 6
Companies Act 1956Companies Act 2013 Schedule XIV to the Act
provides the rates at which depreciation is to be provided on
different class of assets ( on WDV or SLM basis) Schedule II
provides Useful Lives to compute depreciation on various assets and
manner of computing depreciation Section 350 providing
ascertainment of depreciation Section 123 (2) Companies (Accounting
Standard s) Rules 2006 Companies (Account) Rules 2014 inter alia,
provides: a.Manner of keeping books of accounts. b.Maintenance and
inspection of certain financial information by directors. As a
transitory provision Accounting Standard rules 2006 continue to be
in force till the time new rules are announced. (Rule 7) D.P. Shah
D. Shah & Associates6
Slide 7
Companies Act 1956Companies Act 2013 Books Though the Companies
Act, 1956 does not define Books of Account, but section 209(1)
prescribed the manner of keeping books of account as : 1) Every
company shall keep at its registered office proper books of account
with respect to: (a) all sums of money received and expended by the
company and the matters in respect of which the receipt and
expenditure take place ; (b) all sales and purchases of goods by
the company ; (c) the assets and liabilities of the company ; and
Section 2 (12) book and paper and book or paper include books of
account, deeds, vouchers, writings, documents, minutes and
registers maintained on paper or in electronic form; Section 2(3)
defining `Books of accounts as books of account includes records
maintained in respect of (i) all sums of money received and
expended by a company and matters in relation to which the receipts
and expenditure take place; D.P. Shah D. Shah &
Associates7
Slide 8
Companies Act 1956Companies Act 2013 Books (d) in the case of a
company pertaining to any class of companies engaged in production,
processing, manufacturing or mining activities, such particulars
relating to utilization of material or labor or to other items of
cost as may be prescribed, if such class of companies is required
by the Central Government to include such particulars in the books
of account : (ii) all sales and purchases of goods and services by
the company; (iii) the assets and liabilities of the company; and
(iv) the items of cost as may be prescribed under section 148 in
the case of a company which belongs to any class of companies
specified under that section; yet to be notified. D.P. Shah D. Shah
& Associates8
Slide 9
Changes: Definition of book and paper and book or paper is
modified, so as to include minutes and registers and all documents
maintained in electronics form also form part of it. Now `books of
account are specifically defined. D.P. Shah D. Shah &
Associates9
Slide 10
Companies (Account) Rules 2014 inter alia, provides manner of
keeping books of accounts in electronic mode. It reads as; 3.
Manner of books of account to be kept in electronic mode.- (1) The
books of account and other relevant books and papers maintained in
electronic mode shall remain accessible in India so as to be usable
for subsequent reference. (2) The books of account and other
relevant books and papers referred to in sub-rule (1) shall be
retained completely in the format in which they were originally
generated, sent or received, or in a format which shall present
accurately the information generated, sent or received and the
information contained in the electronic records shall remain
complete and unaltered. (3) The information received from branch
offices shall not be altered and shall be kept in a manner where it
shall depict what was originally received from the branches. D.P.
Shah D. Shah & Associates10
Slide 11
D.P. Shah D. Shah & Associates11 (4) The information in the
electronic record of the document shall be capable of being
displayed in a legible form. (5) There shall be a proper system for
storage, retrieval, display or printout of the electronic records
as the Audit Committee, if any, or the Board may deem appropriate
and such records shall not be disposed of or rendered unusable,
unless permitted by law: Provided that the back-up of the books of
account and other books and papers of the company maintained in
electronic mode, including at a place outside India, if any, shall
be kept in servers physically located in India on a periodic
basis.
Slide 12
D.P. Shah D. Shah & Associates12 (6) The company shall
intimate to the Registrar on an annual basis at the time of filing
of financial statement- (a) the name of the service provider; (b)
the internet protocol address of service provider; (c) the location
of the service provider (wherever applicable); (d) where the books
of account and other books and papers are maintained on cloud, such
address as provided by the service provider. Explanation.- For the
purposes of this rule, the expression "electronic mode" includes
electronic form as defined in clause (r) of sub-section (1) of
section 2 of Information Technology Act, 2000 (21 of 2000) and also
includes an electronic record as defined in clause (t) of
sub-section (1) of section 2 of the Information Technology Act,
2000 (21 of 2000) and books of account shall have the meaning
assigned to it under the Act.
Slide 13
D.P. Shah D. Shah & Associates13 Unlike The Companies Act
1956, now manner of maintenance of books of accounts under
electronic mode have prescribed along with filling of the details
of the service providers with its IP Address, Location of servers
etc. It is also provided that vouchers be maintained in legible
form. Audit committee or board is required to evolved a system for
storage, retrieval and display of print out of electronic records
and disposal there of. In case of accounts being maintained in
electronic mode out side India it is required that the back ups
there of be kept in servers physically located in India.
Slide 14
D.P. Shah D. Shah & Associates14 If the managing director,
the whole-time director in charge of finance, the Chief Financial
Officer or any other person of a company charged by the Board with
the duty of complying with the provisions of this section,
contravenes such provisions, such managing director, whole-time
director in charge of finance, Chief Financial officer or such
other person of the company shall be punishable with imprisonment
for a term which may extend to one year or with fine which shall
not be less than fifty thousand rupees but which may extend to five
lakh rupees or with both. It may be interesting to note that in
view of representations various Chamber of Commerce, Standing
committee on finance had made following suggestion on the issue of
penalty in case of default: The Committee are of the view that the
Ministry may consider a less harsh position on the question of
default not committed willfully with respect to books of accounts
etc., to be kept by the company, particularly in the context to the
existing position in law, which provides defenses for non- willful
cases. However the relief prescribed by the Standing Committee on
Finance constituted by Parliament has not been addressed by
MCA.
Slide 15
D.P. Shah D. Shah & Associates15 Companies Act 1956, did
not permit inspection of books of accounts by any director of the
company. CA 2013 by Section 128 (3) provides that provides that
books of accounts etc shall be open for inspection by any of the
director of the company and under Rule 4 it provides the manner and
conditions of inspection of books of accounts of company and its
subsidiary.
Slide 16
It has been provided that a Director of the Company can inspect
books of accounts of the company. 1. Can a director nominate a
professional for carrying out inspection of books of accounts on
his behalf ? 2. Can a director of holding company inspect books of
accounts of subsidiary ? D.P. Shah D. Shah & Associates16
Slide 17
3. Maintenance of books of accounts in electronic form has been
permitted now in CA 2013, similar provision was not there in CA
1956. Most of the companies were maintaining accounts in SAP/ERP or
Tally or such other software. Was it illegal to maintain accounts
in electronic form under the regime of CA 1956 ? D.P. Shah D. Shah
& Associates17
Slide 18
Poser 4. Section 116 (5) inter alia, provides that books of
accounts together with vouchers be kept in good order for eight
years or till the completion of inspection if any, which ever is
later. Now a days every company has a space problem. Whether
maintaining vouchers in electronic form i.e. scanned copy, would be
sufficient compliance ? D.P. Shah D. Shah & Associates18
Slide 19
Financial Statement D.P. Shah D. Shah & Associates19
Slide 20
Companies Act, 1956Companies Act, 2013 Financial Year means, in
relation to any body corporate, the period in respect of which any
profit and loss account of the body corporate laid before it in
annual general meeting is made up, whether that period is a year or
not: Financial Year means in relation to any company or body
corporate, means the period ending 31 st day of the March every
year, and where it has been incorporated on or after the 1 st day
of January of a year, the period ending on 31 st day of march of
the following year, in respect where of financial statement of the
company or body corporate is made up. D.P. Shah D. Shah &
Associates20
Slide 21
Changes 1. Definition - now financial year can only be of April
to March and only a company or body corporate, which Is a holding
company or subsidiary company of a company incorporate outside
India and is required to follow a different financial year for
consolidation of its accounts out side India, may have different
financial year subject to approval of tribunal. 2. A transition
period of 2 year has been prescribed for companies existing on the
commencement of this Act to align their financial year to
April-March. D.P. Shah D. Shah & Associates21
Slide 22
The definition of Financial Statement is not provided under the
Companies Act, 1956. But the manner of keeping books of account is
provided in section 209 of the Companies Act, 1956 D.P. Shah D.
Shah & Associates22
Slide 23
MEANING OF FINANCIAL STATEMENT [Sec. 2(40)] In relation to
company, includes: a) Balance Sheet at the end of financial year.
b) statement of Profit & Loss for the financial year c) Cash
Flow statement (not mandatory for small companies, OPCs &
Dormant companies) for the financial year. d) Statement of Changes
in equity, if applicable e)Explanatory statement Note annexed to
& forming part of Financial statements. D.P. Shah D. Shah &
Associates23
Slide 24
Changes The Companies Act, 2013 provides that books of accounts
may be kept in electronic form also. Every Company shall now be
required to prepare and keep financial statements, other relevant
books, minutes and registers at its registered office. The term
Balance Sheet, Profit & Loss Account, has been define
collectively as Financial Statement under the Act, cash flow
statement and statement showing change in equity (if applicable) of
the company also forms part of the same. D.P. Shah D. Shah &
Associates24
Slide 25
Small Company : Small Company is not defined under the
Companies act, 1956. As per section 2(85) of the Companies Act,
2013, small company means a company, other than a public company-
i. Paid up share capital does not exceed Rs.50 lakh or such higher
amount as may be prescribed which shall not be more than Rs. 5
crore or ii. Turn over as per its last statement of profit and loss
does not exceed Rs. 2 crore or such higher amount as may be
prescribed which shall not be more than Rs. 20 crore. D.P. Shah D.
Shah & Associates25
Slide 26
Small Company (Contd..) This clause shall not apply to a. A
holding company or subsidiary company b. A company registered under
section 8 (formation for charitable objects) c. A company or body
corporate governed by any special Act. D.P. Shah D. Shah &
Associates26
Slide 27
Requirements of Financial Statement (Sec. 129) The FS shall
give a true and fair view and comply with the AS & shall be in
the form as provided in Schedule III. The FS shall be laid in the
AGM within six months form the end of the financial year. The
holding company shall in addition, prepare a Consolidated Financial
Statement of the Company along with its all subsidiaries,
associates & joint ventures and lay before the AGM. D.P. Shah
D. Shah & Associates27
Slide 28
Consolidated Financial Statement (CFS) Neither the Companies
Act, 1956 nor AS 21 requires the Companies to prepare Consolidated
Accounts. At present, Clause 32 of the Listing Agreement mandates
listed Companies to publish its Consolidated Accounts which is
neither required to be laid before the AGM nor to be filed with
ROC. D.P. Shah D. Shah & Associates28
Slide 29
Under the Companies Act, 2013 where a company has one or more
subsidiaries, it shall, in addition to financial statements,
prepare consolidated financial statement of the company and laid
before the annual general meeting of the company. All subsidiaries,
associates and joint ventures will be covered under CFS. Company
shall prepared the Consolidated Financial Statements according to
Schedule III of the Companies Act, 2013 which is in line with
revised schedule VI. All Companies including unlisted and private
companies, with subsidiaries will need to prepare CFS. D.P. Shah D.
Shah & Associates29
Slide 30
General Instructions for preparation of CFS Where a company is
required to prepare CFS, the company will mutatis mutandis follow
the requirements of this Schedule. Profit or Loss attributable to
minority interest and to owners of the parent in the statement of
profit and loss shall be presented as allocation for the period. A
company will disclose the list of subsidiaries or associates or
joint ventures, which have not been consolidated along with the
reasons for non consolidation. D.P. Shah D. Shah &
Associates30
Slide 31
Re-opening of accounts on Courts or Tribunals orders (Sec. 130)
D.P. Shah D. Shah & Associates31 Re opening of accounts is not
provided under the Companies Act, 1956. This new Section provides
for provisions relating to re- opening or re-casting of the books
of accounts of Company pursuant to order of Court or Tribunal on
application made by CG, any Statutory Authority or any person
concerned if it was found that earlier accounts were prepared in
fraudulent manner or financial statements are not reliable due to
mismanagement of affairs of the company. The accounts so revised or
re-cast shall be final.
Slide 32
Voluntary revision of FS or Boards report (Sec. 131) D.P. Shah
D. Shah & Associates32 The directors to prepare revised
financial statement or a revised Boards report of any of the 3
preceding financial years only once in a FY, if it appears to them
that they did not comply with the requirement of Section 129 or
Section134 after obtaining approval of the Tribunal. Tribunal shall
take into account the representations if any, of the CG and of the
IT Department. Such revised financial statement or report shall be
done in conformity with the rules as may be prescribed.
Slide 33
Form 9.2 provided in draft rules requires disclosure of effect
of revision on 1. Assets 2. Liabilities (including contingent
liabilities) 3. Revenue 4. Profit/loss before taxes 5. Net profit
after tax/loss 6. Earning per share 7. Dividend 8. Any other item
(specify in detail) D.P. Shah D. Shah & Associates33
Slide 34
The revised account along with boards report there on is
required to be approved by board and to be placed before the AGM
along with report of the auditors there on. However if the original
financial statement was audited by different auditor, than, the
revised financials shall accompanied by the consent letter from the
auditor who reported upon the financial statements sought to be
revised. In case such auditor does not agree or the company is
unable to procure the consent letter, reasons for such different
opinion or inability to procure consents shall be explained. Such
revised financials are required to be filed with ROC and in case of
listed company with stock exchange. D.P. Shah D. Shah &
Associates34
Slide 35
Constitution of National Financial Reporting Authority (Sec.
132) D.P. Shah D. Shah & Associates35 This Section provides
that the CG may by notification constitute the NFRA to advice on
Accounting Standards (AS) & Auditing Standards(SA), to monitor,
enforce, compliance and overseeing the quality of service of
associated professionals. Contd..
Slide 36
Constitution of National Financial Reporting Authority (Sec.
132) D.P. Shah D. Shah & Associates36 The authority shall have
power to investigate the matters of misconduct committed by any
member of ICAI or any other prescribed profession and pass order
which may be appealed to Appellate Authority to be constituted by
CG. Qualifications, terms and conditions of appointment of the
chairperson and members of the Appellate Authority have also been
provided.
Slide 37
CG to prescribe AS (Sec. 133) D.P. Shah D. Shah &
Associates37 This Section provides that the CG may, after
consultation with NFRA, prescribe the Accounting Standards as
recommended by the ICAI for adoption by companies. As per Rule 7 of
Companies (Account) rules 2014, Accounting standards prescribed
under Companies Act 1956 shall be deemed to be the accounting
standards until accounting standards are notified under Section
133.
Slide 38
A. Following AS are applicable to all companies, without
exception: AS-1 Disclosure of Accounting Policies AS-2 Valuation of
Inventory AS-4 Contingencies and Events occuring after Balance
sheet date AS-5 Net Profit or Loss for the period. Prior period
items and changes in Accounting policies AS-6 Depreciation
Accounting D.P. Shah D. Shah & Associates38
Slide 39
AS-7 Construction Contracts AS-9 Revenue Recognition AS-10
Accounting for Fixed Assets AS-11 The effects of changes in Foreign
exchange Rates As-12 Accounting for Government grants AS-13
Accounting for Investments AS-14 Accounting for Amalgamations As-16
Borrowing costs AS-18 Related Party Transactions D.P. Shah D. Shah
& Associates39
Slide 40
As-22 Accounting for taxes on Income As-24 Discontinuing
operations As-26 Intangible Assets D.P. Shah D. Shah &
Associates40
Slide 41
B. At present, following AS are applicable to companies only
if, the preparation of consolidated FS/Interim FS are either
mandatory or these companies voluntary chooses to do so. However,
till the time IND AS are notified, companies required to prepare
consolidated FS would have to follow; AS- 21ConsolidatedFinancial
Statements As-23 Accounting for investments in Associates AS-27
Financial Reporting of Interest in Joint Ventures AS-25 Interim
Financial Reporting D.P. Shah D. Shah & Associates41
Slide 42
Following standards are not applicable to SMCs in its entirety:
AS-3 Cash Flow AS-17 Segment Reporting SMC as per Accounting
Standard Rules 2006 are the companies: a. Whose equity or debt
securities are not listed on any stock exchange or are not in
process of listing. b. which is not a bank, financial institution
or an insurance company. D.P. Shah D. Shah & Associates42
Slide 43
c. Whose turnover excluding other income does not exceed Rs.50
Crore in immidiately preceding previous year. d. which does not
have borrowings including public deposits in excess of Rs.10 Crore
e. which is not a holding or subsidiary of a company which is not
SMC D.P. Shah D. Shah & Associates43
Slide 44
D. Following Standards are applicable to SMCs with certain
exemptions D.P. Shah D. Shah & Associates44 Accounting
StandardExemption paragraphs AS-15 Employee BenefitsPara 11 t0 16
Para 46 and 130 Para 50 to 116 Para 117 to 123 Para 129 to 131
AS-19 LeasesPara 22, (e) and (f) Para 25(a),(b) and (e) Para 37(a)
and (f) Para 46(b) and (d) AS -20 Earnings per shareDisclosure of
Diluted earning
Slide 45
D. Following Standards are applicable to SMCs with certain
exemptions D.P. Shah D. Shah & Associates45 Accounting
StandardExemption paragraphs AS-28 Impairment of Asset Certain
provisions relating to measurement of `Value in Use and para121(g)
AS-29 Provisions, Contingent Liabilities and Contingent Assets Para
66and 67
Slide 46
Though MCA has issued 35 Ind AS in February 2011 yet they are
not notified. Upon its Notification, companies would be required to
follow Ind AS issued by MCA. D.P. Shah D. Shah &
Associates46
Slide 47
BOD shall approve FS (Sec. 134) D.P. Shah D. Shah &
Associates47 This Section provides that the Financial Statements,
including CFS should be approved by the BOD before they are signed
and submitted to auditor. The Boards Report & Auditors Report
are to be attached with every FS before it is issued.
Slide 48
Board Report (Sec. 134) Financial Statement shall be signed by
at least the chairperson if authorized by board or by at least 2
directors one of whom shall be managing director and CEO if he is a
director in the company and CFO and Company Secretary where ever
they are appointed. In case of OPC only by one director. Board
report to contain following information:- Extract of the Annual
Return as prescribed under section 92 in Form MGT - 9 No. of Board
Meeting held. Directors Responsibility Statement. Declaration by
Independent Directors regarding their appointment Co.s policy on
Directors appt. & remuneration if required to constitute
Nomination and Remuneration Committee. D.P. Shah D. Shah &
Associates48
Slide 49
Explanation/Comments by the Board on every qualification,
reservation or adverse remark or disclaimer made by Auditor in his
Audit Report and Company Secretary in his Secretarial Audit Report
Particulars of loans, guarantees or investments under section 186.
Particulars of contracts or arrangements with related parties in
Form AOC - 2 pursuant to Rule 8(2) The state of the company s
affairs. The amounts, if any, which it propose to carry to any
reserves. The amount, if any, which it recommends should be paid by
way of dividend. D.P. Shah D. Shah & Associates49
Slide 50
Material changes & commitments affecting companys financial
position between previous year and current year & date of the
report. Statement indicating development and implementation of risk
management policy Details of policy developed and implemented on
CSR applicable to companies having net worth of Rs. 500 crore or
more or turnover of Rs. 1000 crore or more or net profit of Rs. 5
crore or more during the financial year. For listed companies &
prescribed companies, a statement of manner of annual evaluation of
its own performance, its committees and individual directors. D.P.
Shah D. Shah & Associates50
Slide 51
Directors Responsibility Statement to contain following
additional statement: - Laying down of Internal Financial Control
in case of listed company. Devising proper system to ensure
compliance of all applicable laws. Company no longer required to
disclose the following in the Directors Report:- Reasons for
non-completion of buy back within time period specified in the
Bill. Details of employees in receipt of remuneration not less than
the prescribed rate of remuneration. D.P. Shah D. Shah &
Associates51
Slide 52
Section 136 of the Act provides for circulation of financial
statements and in case of listed companies preparation and manner
of circulation of abridged financial statements. D.P. Shah D. Shah
& Associates52
Slide 53
Copy of FS to be filed with Registrar (Sec. 137) D.P. Shah D.
Shah & Associates53 This Section provides that a copy of FS,
auditors report etc shall be filled with the Registrar within 30
days. In case a company does not hold an AGM or the AGM has been
adjourned in any year, a statement of facts and reasons along with
FS and attachment has to be filed with the Registrar. In case the
accounts are not adopted at AGM or adjourned meeting, the unadopted
accounts shall be filed with ROC who shall take them in his records
as provisional till final accounts are filed.
Slide 54
Copy of FS to be filed with Registrar (Contd..) One Person Co.
(OPC) is required to file the FS with the Registrar within 180 days
from the date of meeting. Now every company at the time of filling
their FS with registrar shall also attach the accounts of its
subsidiaries which have been incorporated o/s India. D.P. Shah D.
Shah & Associates54
Slide 55
Depreciation D.P. Shah D. Shah & Associates55
Slide 56
Companies Act, 1956Companies Act, 2013 As per Section 350 of
the Act the amount of depreciation to be deducted in pursuance of
clause (k) of sub-section (4) of section 349 shall be the amount of
depreciation on assets as shown by the books of the company at the
end of the financial year expiring at the commencement of this Act
or immediately thereafter and at the end of each subsequent
financial year at the rate specified in Schedule XIV: Section
123(2) provides that the depreciation shall be calculated as per
the provisions of schedule II. Schedule II introduced: Depreciation
to be based on useful life & residual value Useful lives of
various tangible assets prescribed Residual Value not more than 5%
of the original cost of the asset From the date Schedule II becomes
effective carrying amount of the asset shall be depreciated over
the remaining useful life of the asset D.P. Shah D. Shah &
Associates56
Slide 57
SCHEDULE II (See section 123) USEFUL LIVES TO COMPUTE
DEPRECIATION PART A 1. Depreciation is the systematic allocation of
the depreciable amount of an asset over its useful life. The
depreciable amount of an asset is the cost of an asset or other
amount substituted for cost, less its residual value. The useful
life of an asset is the period over which an asset is expected to
be available for use by an entity, or the number of production or
similar units expected to be obtained from the asset by the entity.
D.P. Shah D. Shah & Associates57
Slide 58
USEFUL LIVES TO COMPUTE DEPRECIATION (Contd.) 2. For the
purpose of this Schedule, the term depreciation includes
amortisation. 3. Without prejudice to foregoing provisions of
paragraph 1, (i) In case of such class of companies, as may be
prescribed and whose financial statements comply with the
accounting standards prescribed for such class of companies under
section 133 the useful life of an asset shall not normally be
different from the useful life and the residual value shall not be
different from that as indicated in Part C, provided that if such a
company uses a useful life or residual value which is different
from the useful life or residual value indicated therein, it shall
disclose the justification for the same. D.P. Shah D. Shah &
Associates58
Slide 59
USEFUL LIVES TO COMPUTE DEPRECIATION (Contd.) (ii) In respect
of other companies the useful life of an asset shall not be longer
than the useful life and the residual value shall not be higher
than that prescribed in Part C. (iii) For intangible assets, the
provisions of the Accounting Standards mentioned under sub-para (i)
or (ii), as applicable, shall apply. D.P. Shah D. Shah &
Associates59
Slide 60
USEFUL LIVES TO COMPUTE DEPRECIATION (Contd.) PART B 4. The
useful life or residual value of any specific asset, as notified
for accounting purposes by a Regulatory Authority constituted under
an Act of Parliament or by the Central Government shall be applied
in calculating the depreciation to be provided for such asset
irrespective of the requirements of this Schedule. D.P. Shah D.
Shah & Associates60
Slide 61
D.P. Shah D. Shah & Associates61 Part 'C' Depreciation
(Contd.) Componentization of assets mandated Separate
capitalization and depreciation of a part of an asset if its cost
is significant to the total cost of the asset and its estimated
life is different from the remaining asset Accounting for
replacement costs. Significant increase in rate of depreciation of
commonly used assets as compared to Schedule XIV rates under the
1956 Act
Slide 62
D.P. Shah D. Shah & Associates62 Nature of asset -
illustrative The Companies Act, 2013 The Compani es Act, 1956
Increas e % change Useful Life Deeme d rate General Plant and
Machinery other than continuous process
plant156.33%4.75%1.58%33.33% Continuous process
plant811.88%5.28%6.60%124.91% General furniture and
fittings109.50%6.33%3.17%50.08% Office
equipment519.00%4.75%14.25%300.00% Desktops, laptops,
etc.331.67%16.21%15.46%95.35% Electrical Installations and
Equipment109.50%4.75% 100.00% Depreciable amount to be determined
after reducing expected residual value Residual value generally not
more than 5% of the original cost of the asset
Slide 63
D.P. Shah D. Shah & Associates63 Depreciation :
Depreciation on tangible fixed assets based on estimated useful
life From a Rates regime to Useful Lives Useful life of an asset is
the period over which the asset is expected to be available for use
by the entity or the number of production or similar units expected
to be obtained from the asset
Slide 64
Production and exhibition of motion picture films (13 years)
Steel (20-25 years) Glass manufacturing (8-13 years)Non-ferrous
metals (25-40 years) Mines & quarries (8 years)Medical &
surgical operations (13- 15 years) Telecommunication (13-18
years)Pharmaceuticals and Chemicals (20 years) Exploration,
production and refining of oil & gas (8-30 years) Civil
construction (9-20 years) Generation, transmission and distribution
of power (22-40 years) Salt works (15 years) D.P. Shah D. Shah
& Associates64 Depreciation of plant & machinery based on
industry category. Specified industries:
Slide 65
D.P. Shah D. Shah & Associates65 Notes 1. "Factory
buildings" does not include offices, godowns, staff quarters. 2.
Where, during any financial year, any addition has been made to any
asset, or where any asset has been sold, discarded, demolished or
destroyed, the depreciation on such assets shall be calculated on a
pro rata basis from the date of such addition or, as the case may
be, up to the date on which such asset has been sold, discarded,
demolished or destroyed. 3. The following information shall also be
disclosed in the accounts, namely: (i) depreciation methods used;
and (ii) the useful lives of the assets for computing depreciation,
if they are different from the life specified in the Schedule. 4.
Useful life specified in Part C of the Schedule is for whole of the
asset. 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.
Slide 66
Notes (contd.) 5. Depreciable amount is the cost of an asset,
or other amount substituted for cost, less its residual value.
Ordinarily, the residual value of an asset is often insignificant
but it should generally be not more than 5% of the original cost of
the asset. 6. The useful lives of assets working on shift basis
have been specified in the Schedule based on their single shift
working. Except for assets in respect of which no extra shift
depreciation is permitted (indicated by NESD in Part C above), if
an asset is used for any time during the year for double shift, the
depreciation will increase by 50% for that period and in case of
the triple shift the depreciation shall be calculated on the basis
of 100% for that period. D.P. Shah D. Shah & Associates66
Slide 67
Notes (contd.) 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
recognised in the opening balance of retained earnings where the
remaining useful life of an asset is nil. 8. Continuous process
plant means a plant which is required and designed to operate for
twenty-four hours a day. D.P. Shah D. Shah & Associates67
Slide 68
Some examples : 1. Where the useful life of assets still
persist as compared to the useful life of asset provided under
schedule II. 2. Useful life remains.xlsx Useful life remains.xlsx
3. Where useful life of asset is over as compared to useful life
provided under schedule II. 4. Useful life over.xlsx Useful life
over.xlsx D.P. Shah D. Shah & Associates 68
Slide 69
Poser CA 1956 had Schedule XIV wherein SLM Rates and WDV rates
were prescribed for different class of assets and companies had an
option to provide depreciation and any of these rates. Now CA 2013
has provided that depreciation has to be provided as per Schedule
II of the Act wherein useful life of different class of assets have
been provided and depreciation has to be provided accordingly till
95% of the value of asset is written of. Does this mean that
depreciation has to be written off according to SLM only or still
the companies have option to provide depreciation based upon other
methods ? D.P. Shah D. Shah & Associates69