CA Pratik Anand 

CA PRATIK ANANDThe time for preparation of the first financial statements as per the Companies Act’2013 is here. One of the most important provisions of the Act for Companies as well as the auditors to consider is the new method of the calculating depreciation as per Schedule II Part C of the Companies Act’2013.

Here is a list of important points to remember while calculating Depreciation as per Companies Act’2013.

1. Schedule II of the Companies Act’ 2013 for calculating depreciation is applicable only on tangible assets. For calculating Depreciation on intangible assets, the companies have to follow the applicable accounting standards.

2.  Depreciation as per Companies Act’ 2013 depends on the useful life of various assets as defined in the Schedule II to the Companies Act’2013.

3.  Rates of depreciation depend on the useful life of assets. No separate rates of depreciation are defined in the Act.

4.  95% of the original cost of the asset only has to be depreciation.

5.  5% is the residual value of assets prescribed as per schedule II of the Companies Act’2013.

6. The residual value of asset is to be calculated on the original cost of the Asset.

7.  The useful life of various assets as given in schedule II is mandatory to be followed. If a Company does not follow such useful life then it has to submit a technical report substantiating the useful life taken by it. Also disclosure that a different useful life to that prescribed in the Act is used by the Company is mandatory.

8.   Date of purchase is most important to calculate the remaining useful life of the asset as on 01.04.2014. Existing assets are to be depreciated over the remaining useful lives as on 01.04.2014.

9. Date of purchase can be found in the fixed asset register or the depreciation chart of the company and can also be available in the tax audit report of the Company for various years.

10.  If the life of the asset as on 01.04.2014 is already more than useful life as prescribed in Schedule II, then no depreciation can be charged after 01.04.2014. However, an amount equal to the (WDV-Residual value) has to be written off from either the P&L A/c or from the retained earnings of the Company in the FY 2014-15.

11. During the transitional year i.e FY 2014-15, The Company cannot change its method of calculating depreciation from WDV to SLM or vice-versa. Any change by the company in the method of calculating depreciation will amount to change in accounting policy as per AS-5. The calculation of the impact of such change on the Statement of Profit & Loss has to be disclosed by the company in its financial statements

12. The rate of depreciation becomes 1.5 times & 2 times of the normal rates in case of double shifts and triple shifts respectively.

13. Charging depreciation is mandatory if the company wants to declare dividend or for payment of managerial remuneration. Charging depreciation is also mandatory as per the applicable accounting standards in order to give a true & fair view.

14.  As per ICAI guidance note, if the value of the asset is upto Rs. 5000/- then it can be fully depreciated.

(The author is a CA in practice at Delhi and can be contacted at: E-mail:, Mobile: +91-9953199493)

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Qualification: CA in Practice
Company: Pratik & Associates
Location: New Delhi, New Delhi, IN
Member Since: 10 Jun 2017 | Total Posts: 54
Pratik Anand is the founder of, an online startup for business registrations, annual business compliance services, Tax filings, book keeping, legal consultancy etc. He is a Chartered accountant by profession and has special flair and expertise in the area of direct Taxation. H View Full Profile

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  1. Deepak kumar agarwal says:

    sir I have a query regarding charging of depreciation,
    Same assets acquired on various date during a year before this year then whose date will be considered for calculating depreciation.

  2. Tanul says:

    The requirement to fully depreciate assets of value upto Rs. 5000 was stated in Companies Act 1956. However there is no such requirement in the Companies Act 1956. So depreciation on assets less than Rs. 5000 will be calclated as per useful life.

  3. RAMA RASTOGI says:

    I have a query that if we know the year of purchase of fixed asset but not date then how depreciation will be calculated?

  4. CA Srinivasa Rao Chintala says:

    Dear Sir,

    How can i calculate the depreciation rate either based on useful life or remaining useful life to calculate the depreciation from 1st April 2014.

  5. B.Chakrapani Warrier says:

    ICAI Guidance note doesn’t say that asset costing 5,000 should be fully depreciated. The wordings of the said guidance note is reproduced below for easy reference to the readers of this writing.
    ” Accordingly, a company may have a policy to fully depreciate assets upto certain threshold limits considering materiality aspect in the year of acquisition”.

  6. ca kimi mehta says:

    Kindly explain if machine is purchased from third Party and he has used such machine say 2years then it was purchased by us.then which date will be purchase date and depreciation will be applicable from the day I purchased and do I have to consider depreciation charged by third party.

    1. Rohit says:

      No, in my opinion, following things would be considered:

      Purchase date: Date you purchased the machine
      Cost of purchase: your cost of acquisition of machine
      Depreciation: Normal depreciation considering remaining useful life and your cost of purchase.

      Seller’s depreciation wouldn’t be counted.

  7. sanjay K Gupta says:

    Dear Sir

    Regarding asset costing up to Rs 5000 .Company act 2013 does not state to charge depreciation fully .Guidence note can not superceed companies act 2013 as per schedule II

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