Schedule II - 03.07.15

Depreciation Accounting

Schedule IICompanies Act, 2013

Presented By:-

Deepak [email protected]+91 8377 838 738

Applicable from 01-04-2014MCA notification no S.O.902(E) dated 26-03-2014

© No Copyrights03-July-2015

Overview

• Companies Act, 1956 v Companies

Act, 2013

• Definition of Depreciation

• Depreciable Assets

• Methods of Depreciation

• Component based Accounting

• Transition

Companies Act, 1956 v 2013

Particulars Schedule IICompanies Act, 2013

Schedule XIVCompanies Act, 1956

Definitions

Depreciation Depreciable Amount Useful Life

(Same as AS-6)

Not given

Basis of Depreciation Useful life regime Rate regime

Intangible AssetsAS-26Except for BOT Assets using Revenue model

No mentionExcept for BOT Assets using Revenue model

Companies Act, 1956 v 2013

Particulars Schedule IICompanies Act, 2013

Schedule XIVCompanies 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

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 LifeInd As-16 : Economic Life

The definition as per Accounting Standard - 6 is same as above.

Part - A Clause - 1Part - A Clause - 2

Depreciable Assets

Assets which:i. Are expected to be used for more than

one accounting yearii. Have limited useful lifeiii.Are held to be used in production of

goods / services, i.e. not held for sale in normal course

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.

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

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.

AmendmentMarch 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.

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.

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

Methods of Depreciation

C

lass

• Companies applying Ind-AS

• Can choose alternative useful life and Residual Value

• Disclose Justification

C

lass

• Accounting policies defined by any act if parliament

• use depreciation rates/useful lives and residual values prescribed by the relevant authority

C

lass

• Other Companies

• Strictly follow Schedule - II

March 27, 2014


• 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


Part - BPart - A Clause - 3

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

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 overremaining useful life

Debit :Profit & Loss A/c

Part - C Note - 7

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 = x 100

SLM

R = x 100

WDV

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%

II25

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/-






Solution :

Schedule

Useful Life

WDV Rate

XIV - 13.91%

II25

Remaining :

20

WDV : ` 4,72,894/-

Let us calculate WDV rate as per Schedule II := x 100

= x 100

=

= { 1 - 0.8938} x 100 =

10.62%

10.62%






Solution :

Schedule

Useful Life

WDV Rate

XIV - 13.91%

II25

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


Accounting Standard (AS) - 6 : Depreciation AccountingStates 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 rates Management’s estimate of useful life is

higher than Schedule -II


Example

Schedule - II Management’s Estimate AS - 6

Useful

Life(year

s)

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.


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 RequirementResidual Value

(% of cost)Residual Value

(% of cost)Residual Value

(% of cost)

5% 2% 2% Not required

5% 10% either Justification if10% applied

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.


Component based accounting is optional for F.Y. 2014-15 and mandatory from F.Y. 2015-16

Part - C Note - 4

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

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

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.

Thank You

All the Best for Audits

Presented By:-

Deepak [email protected]

+91 8377 838 738

Documents

Schedule II - 03.07.15