Schedule II of Companies Act, 2013

CA Tapesh Kumar

Earlier, the depreciation on fixed assets of companies are regulated by Schedule XIV of Companies Act, 1956 along with Accounting Standard 6 and guidelines issued by ICAI. The positions has been changed from Financial Year 2014-15, which has created curiosities in various professional. The ICAI has issued guidance for clarification of various provisions of Schedule II.

As per schedule XIV of Companies act, 1956, depreciation rates has been provided for Straight line Method as well as Written down Value. The Act also provides for charging the fixed assets below monetary limits. The depreciation is charged as per rates provided in the schedule irrespective of whether asset is scrapped, discarded etc. There is a short description of assets due to which a confusion is created for charging depreciation

As per Schedule II of Companies Act, 2013 The description of Fixed assets has been more detailed to short out the problem of rates of charging depreciation and the maximum life of assets has been provided so that the Financial statement can provided a true and fair view. The depreciation can be charged after taking into consideration of

1. Useful Life
2. Residual Value

Useful Life

As per Schedule II, useful life is either (i) the period over which a depreciable asset is expected to be used by an entity; or (ii) the number of production or similar units expected to be obtained from the use of the asset by the entity.

The useful life can be different as provided in Schedule II, The determination of useful life of depreciable asset on estimate basis and based on various factors and experience. The following factors shall be considered in determining the useful life of an asset:

(a) Expected usage of the asset. Usage is assessed by reference to the asset’s expected capacity or physical output.

(b) Expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair and maintenance programme, and the care and maintenance of the asset while idle.

(c) 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. Expected future reductions in the selling price of an item that was produced using an asset could indicate the expectation of technical or commercial obsolescence of the asset, which, in turn, might reflect a reduction of the future economic benefits embodied in the asset.

(d) Legal or similar limits on the use of the asset, such as the expiry dates of related leases.

There are two circumstances arise

1. As per management, useful life is more than provided: – The useful life can be taken either provided by the management or as provided by Schedule II.
2. As per management, useful life is less than provided: – The useful life as per the management is to be taken for charging depreciation.

Part B of the schedule II states that 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.

RESIDUAL VALUE

Expected residual value means the sale price of scrap value of asset after the completion of useful life of assets. The Schedule II provides the residual value should not be more than 5% of the original cost of the asset. However it can be less than 5% of the original cost, then it should be taken as provided by the management.

COMPONENT ACCOUNTING

As per Note 4 of Schedule II,

a) 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.

(b) The requirement under sub-paragraph (a) shall be voluntary in respect of the financial year commencing on or after the 1st April, 2014 and mandatory for financial statements in respect of financial years commencing on or after the 1st April, 2015.

The provisions of component accounting are provided in Para 43 to 47 in Ind AS 16, Property Plant and Equipment which provides as follows:

• Each part of an item with a cost that is significant in relation to the total cost shall be depreciated separately.
• The entity allocates the amount initially recognized in respect of an item to its significant parts and depreciates separately each such part.
• If two or more items are of same useful life and depreciation method may be grouped for determining depreciation.
• For the balance of the parts, the useful life and depreciation can be determined from approximation.
• The entity may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item.

CONTINUOUS PROCESS PLANT

In Schedule XIV of Companies Act 1956, separate rates were provided for plant and machinery used for double/triple shift basis. No such provisions has been provided in Schedule II of Companies Act, 2013.

However the guidance note provided by ICAI suggests that normal depreciation shall be calculated and it should be increased by 50%/100% for double/triple shifts respectively.

CONVERSION PROVISIONS

The company has to assess the useful life of assets as on 01.04.2014 and reduce the life used by the assets as per old provisions.

• The assets which are exist in the financial statement which has been completed useful life can be charged to Reserves and surplus/Profit and Loss account directly.
• The WDV of any asset can be derived as follow:

WDV=Cost*( 1-dep rate) ^no. of years used.

• The assets which has useful life, will be depreciated for balance useful life. The depreciation of SLM method can be easily drawn. In case WDV, The depreciation rates can be arrived as follows:

R= {1 – (s/c)^(1/n) } x 100

            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 (Not NIL or about)

            c= Cost of the asset/Written down value of the asset

The various useful lives and depreciation rates as considering 1% scrap value are as follows:

Nature of assets Useful Life	Useful Life (Year)	SLM Rate	WDV Rate	Purchased On or After
(a) Buildings (other than factory buildings) RCC Frame Structure	60	1.666667	7.388127	31/03/1954
(b) Buildings (other than factory buildings) other than RCC Frame Structure	30	3.333333	14.23041	31/03/1984
(c) Factory buildings	30	3.333333	14.23041	31/03/1984
(d) Fences, wells, tube wells	5	20	60.18928	31/03/2009
(e) Others (including temporary structure, etc.)	3	33.33333	78.45565	31/03/2011
II. Bridges, culverts, bunders, etc. [NESD]	30	3.33	14.23	31/03/1984
(i) Carpeted Roads—RCC	10	10.00	36.90	31/03/2004
(ii) Carpeted Roads—other than RCC	5	20.00	60.19	31/03/2009
(b) Non-carpeted roads	3	33.33	78.46	31/03/2011
(a) Plant and Machinery other than continuous process plant not covered under specific industries	15	6.67	26.44	31/03/1999
(b) Continuous process plant for which no special rate has been prescribed under (ii) below [NESD]	25	4.00	16.82	31/03/1989
1. Cinematograph films—Machinery used in the production and exhibition of cinematograph films, recording and reproducing equipments, developing machines, printing machines, editing machines, synchronizers and studio lights except bulbs	13	7.69	29.83	31/03/2001
2. Projecting equipment for exhibition of films	13	7.69	29.83	31/03/2001
1. Plant and Machinery except direct fire glass melting furnaces — Recuperative and regenerative glass melting furnaces	13	7.69	29.83	31/03/2001
2. Plant and Machinery except direct fire glass melting furnaces — Moulds [NESD]	8	12.50	43.77	31/03/2006
3. Float Glass Melting Furnaces [NESD]	10	10.00	36.90	31/03/2004
(c) Plant and Machinery used in mines and quarries—Portable underground machinery and earth moving machinery used in open cast mining [NESD]	8	12.50	43.77	31/03/2006
1. Towers	18	5.56	22.57	31/03/1996
2. Telecom transceivers, switching centres, transmission and other network equipment	13	7.69	29.83	31/03/2001
3. Telecom—Ducts, Cables and optical fibre	18	5.56	22.57	31/03/1996
4. Satellites	18	5.56	22.57	31/03/1996
1. Refineries	25	4.00	16.82	31/03/1989
2. Oil and gas assets (including wells), processing plant and facilities	25	4.00	16.82	31/03/1989
3. Petrochemical Plant	25	4.00	16.82	31/03/1989
4. Storage tanks and related equipment	25	4.00	16.82	31/03/1989
5. Pipelines	30	3.33	14.23	31/03/1984
6. Drilling Rig	30	3.33	14.23	31/03/1984
7. Field operations (above ground) Portable boilers, drillingtools, well-head tanks, etc.	8	12.50	43.77	31/03/2006
8. Loggers	8	12.50	43.77	31/03/2006
1. Thermal/Gas/Combined Cycle Power Generation Plant	40	2.50	10.87	31/03/1974
2. Hydro Power Generation Plant	40	2.50	10.87	31/03/1974
3. Nuclear Power Generation Plant	40	2.50	10.87	31/03/1974
4. Transmission lines, cables and other network assets	40	2.50	10.87	31/03/1974
5. Wind Power Generation Plant	22	4.55	18.89	31/03/1992
6. Electric Distribution Plant	35	2.86	12.33	31/03/1979
7. Gas Storage and Distribution Plant	30	3.33	14.23	31/03/1984
8. Water Distribution Plant including pipelines	30	3.33	14.23	31/03/1984
1. Sinter Plant	20	5.00	20.57	31/03/1994
2. Blast Furnace	20	5.00	20.57	31/03/1994
3. Coke ovens	20	5.00	20.57	31/03/1994
4. Rolling mill in steel plant	20	5.00	20.57	31/03/1994
5. Basic oxygen Furnace Converter	25	4.00	16.82	31/03/1989
1. Metal pot line [NESD]	40	2.50	10.87	31/03/1974
2. Bauxite crushing and grinding section [NESD]	40	2.50	10.87	31/03/1974
3. Digester section [NESD]	40	2.50	10.87	31/03/1974
4. Turbine [NESD]	40	2.50	10.87	31/03/1974
5. Equipments for Calcination [NESD]	40	2.50	10.87	31/03/1974
6. Copper Smelter [NESD]	40	2.50	10.87	31/03/1974
7. Roll Grinder	40	2.50	10.87	31/03/1974
8. Soaking Pit	30	3.33	14.23	31/03/1984
9. Annealing Furnace	40	2.50	10.87	31/03/1974
10. Rolling Mills	40	2.50	10.87	31/03/1974
12. Surface Miner, Ripper Dozer, etc., used in mines	25	4.00	16.82	31/03/1989
13. Copper refining plant [NESD]	25	4.00	16.82	31/03/1989
1. Electrical Machinery, X-ray and electrotherapeutic apparatus and accessories thereto, medical, diagnostic equipments, namely, Cat-Scan, Ultrasound Machines, ECG Monitors, etc.	13	7.69	29.83	31/03/2001
2. Other Equipments.	15	6.67	26.44	31/03/1999
1. Reactors	20	5.00	20.57	31/03/1994
2. Distillation Columns	20	5.00	20.57	31/03/1994
3. Drying equipments/Centrifuges and Decanters	20	5.00	20.57	31/03/1994
4. Vessel/storage tanks	20	5.00	20.57	31/03/1994
1. Concreting, Crushing, Piling Equipments and Road Making Equipments	12	8.33	31.87	31/03/2002
Cranes with capacity of more than 100 tons	20	5.00	20.57	31/03/1994
Cranes with capacity of less than 100 tons	15	6.67	26.44	31/03/1999
3. Transmission line, Tunneling Equipments [NESD]	10	10.00	36.90	31/03/2004
4. Earth-moving equipments	9	11.11	40.05	31/03/2005
5. Others including Material Handling /Pipeline/Welding Equipments [NESD]	12	8.33	31.87	31/03/2002
(l) Plant and Machinery used in salt works [NESD]	15	6.67	26.44	31/03/1999
(i) General furniture and fittings	10	10.00	36.90	31/03/2004
(ii) Furniture and fittings used in hotels, restaurants and boarding houses, schools, colleges and other educational institutions, libraries; welfare centres; meeting halls, cinema houses; theatres and circuses; and furniture and fittings let out on hire for use on the occasion of marriages and similar functions.	8	12.50	43.77	31/03/2006
1. Motor cycles, scooters and other mopeds	10	10.00	36.90	31/03/2004
2. Motor buses, motor lorries, motor cars and motor taxies used in a business of running them on hire	6	16.67	53.58	31/03/2008
3. Motor buses, motor lorries and motor cars other than those used in a business of running them on hire	8	12.50	43.77	31/03/2006
4. Motor tractors, harvesting combines and heavy vehicles -do-	8	12.50	43.77	31/03/2006
5. Electrically operated vehicles including battery powered or fuel cell powered vehicles	8	12.50	43.77	31/03/2006
VII. Ships [NESD]
1. Ocean-going ships
(i) Bulk Carriers and liner vessels	25	4.00	16.82	31/03/1989
(ii) Crude tankers, product carriers and easy chemical carriers with or without conventional tank coatings.	20	5.00	20.57	31/03/1994
(iii) Chemicals and Acid Carriers :
(a) With Stainless steel tanks	25	4.00	16.82	31/03/1989
(b) With other tanks	20	5.00	20.57	31/03/1994
(iv) Liquified gas carriers	30	3.33	14.23	31/03/1984
(v) Conventional large passenger vessels which are used for cruise purpose also	30	3.33	14.23	31/03/1984
(vi) Coastal service ships of all categories	30	3.33	14.23	31/03/1984
(vii) Offshore supply and support vessels	20	5.00	20.57	31/03/1994
(viii) Catamarans and other high speed passenger for ships or boats	20	5.00	20.57	31/03/1994
(ix) Drill ships	25	4.00	16.82	31/03/1989
(x) Hovercrafts	15	6.67	26.44	31/03/1999
(xi) Fishing vessels with wooden hull	10	10.00	36.90	31/03/2004
(xii) Dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging purposes	14	7.14	28.03	31/03/2000
(i) Speed boats	13	7.69	29.83	31/03/2001
(ii) Other vessels	28	3.57	15.17	31/03/1986
VIII. Aircrafts or Helicopters [NESD]	20	5.00	20.57	31/03/1994
IX. Railways sidings, locomotives, rolling stocks, tramways and railways used by concerns, excluding railway concerns [NESD]	15	6.67	26.44	31/03/1999
X. Ropeway structures [NESD]	15	6.67	26.44	31/03/1999
XI. Office equipment [NESD]	5	20.00	60.19	31/03/2009
(i) Servers and networks	6	16.67	53.58	31/03/2008
(ii) End user devices, such as, desktops, laptops, etc.	3	33.33	78.46	31/03/2011
(i) General laboratory equipment	10	10.00	36.90	31/03/2004
(ii) Laboratory equipments used in educational institutions	5	20.00	60.19	31/03/2009
XIV. Electrical Installations and Equipment [NESD]	10	10.00	36.90	31/03/2004
XV. Hydraulic works, pipelines and sluices [NESD]	15	6.67	26.44	31/03/1999

The depreciation on intangible assets can be derived as per AS-26. However intangible assets created under ‘Build, Operate and Transfer” or any other form of PPP route in road projects, the amortization shall be done as under:-

Amortisation Rate = Amortisation Amount x 100/ Cost of Intangible Assets (A)

Amortisation Amount = Cost of Intangible Assets (A) x Actual Revenue for the year (B)

Projected Revenue from Intangible Asset (till the end of the concession period) (C)

Cost of Intangible Assets (A) = Cost incurred by the company in accordance with the accounting standards.

Actual Revenue for the year (B) = Actual revenue (Toll Charges) received during the accounting year.

Projected Revenue from Intangible Asset (C) = Total projected revenue from the Intangible Assets as provided to the project lender at the time of financial closure / agreement.

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