Depreciation under Companies Act, 2013 on extra shift

Dilip Kumar G

Depreciation under Companies Act, 2013

The extract of Application Guide on the Provisions of Schedule II to The Companies Act, 2013 is quoted below.

“Consequently, various views are possible for determining remaining useful life on transition from Schedule XIV to Schedule II if an asset has been used on double/ triple shift basis in past years. For example, in the case of plant above, one view is that the asset has remaining Schedule II life of 12 years, i.e., 15 years – 3 years. The second view is that remaining Schedule II life of the plant is 9 years, i.e., 15 years –6 years (considering the plant was used on a triple shift basis on all days in the previous three years). The third view is that remaining Schedule II life of the plant is 6 years, i.e., 15 years – 9 years (considering the plant was used on a triple shift basis on all days in previous three years and each shift is considered to depreciate the asset equally).”

The above extract say before charging depreciation on triple shift, the life of Assets should be reduced to half in second and third view. Argues are there whether to consider the same from the beginning of uselife of assets or for remaining uselife.

However, Note 5 to SCHEDULE II of Companies Act, 2013 says –

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.

The word for that period indicates that the depreciation should be provided on the uselife as per schedule II and uselife effect should not be considered before depreciation, depreciation arrived based on same should be increased by 100% in case of Triple. After provide depreciation, the effect of 200% depreciation on uselife to be considered. The same is illustrated with an example.

Illustration

1. The Orginal Cost Rs. 1,00,000, Uselife is 10year, Residual value is Rs.5000 (at 5%)

Depreciation Statement

1.04.xx1	1,00,000
Deprecation	51,773
01.04.xx2	48,227
Deprecation	24,969
01.04.xx3	23,258
Deprecation	12,042
01.04.xx4	11,217
Deprecation	5,807
01.04.xx5	5,409
Deprecation	409
31.03.xx6	5,000

Working

1. Depreciation for 1st Year

R= {1 – (5000/100000)^(1/10) } x 100

            =          25.89%

=          25887

increased by 100%     =          51773

**Because of providing 200% depreciation the remaining uselife reduces to 7.56 years

R = uselife of asset-Log{(Asset value at end of 1st year/Assets value at beginning)},{(5000/100000)^(1/10)}

R =10-LOG((48227/100000),((5000/100000)^(1/10)))

=    7.565692212

2. Depreciation for 2nd Year

R= {1 – (5000/48227)^(1/7.565) } x 100

=          25.89%

=          12484

increased by 100%  =  24969

**Because of providing 200% depreciation the remaining uselife reduces to 5.131 years

R = uselife of asset-Log{(Asset value at end of 2nd year/Assets value at beginning)},{(5000/100000)^(1/10)}

R =10-LOG((23258/100000),((5000/100000)^(1/10)))

=          5.131

3. Depreciation for 3rd Year

R= {1 – (5000/23258)^(1/5.132) } x 100

=          25.89%

=          6021

increased by 100% =  12042

** Because of providing 200% depreciation the remaining uselife reduces to 2.697years

R = uselife of asset-Log{(Asset value at end of 3rd year/Assets vaule at beginning)},{(5000/100000)^(1/10)}

R =10-LOG((11217/100000),((5000/100000)^(1/10)))

=          2.697

4. Depreciation for 4th Year

R= {1 – (5000/11217)^(1/2.697) } x 100

=          25.89%

=          2904

increased by 100%     =          5807

**Because of providing 200% depreciation the remaining uselife reduces below 1year  

5.Depreciation for 5th Year

The remaining value of asset after considering residual value will be taken as depreciation as the remaining uselife fall below 1 year.

##Depreciation Statement as per application guide is quoted below by considering uselife as 5 years (half of 10 years)

1.04.xx1	1,00,000
Deprecation	45,072
01.04.xx2	54,928
Deprecation	24,757
01.04.xx3	30,171
Deprecation	13,599
01.04.xx4	16,572
Deprecation	7,469
01.04.xx5	9,103
Deprecation	4,103
31.03.xx6	5,000

 (Author can be reached at dilip.dilipkumarg@gmail.com)