Navin Agicha

Introduction

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.

The Companies Act, 2013 requires companies to compute the depreciation in accordance with the Schedule II to the Companies Act which provides useful lives to compute the depreciation. Accordingly, provisions governing charge of depreciation in the Schedule XIV to the Companies Act, 1956 have been replaced with Schedule II to the Companies Act, 2013.

For companies for preparation of its financial statements commencing on or after April 1, 2014.

FORMULA TO CALCULATE DEPRECIATION

AS PER WDV METHOD

R= {1 – (s/c)^1/n } x 100

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

AND AS PER SLM METHOD

DEPRECIATION = DEPRECIABLE AMOUNT/ USEFUL LIFE

FAQ (FREQUENTLY ASKED QUESTIONS) WHILE CALCULATING DEPRECIATION AS PER COMPANIES ACT, 2013 ARE AS FOLLOWS:

1. Is there any retrospective effect in depreciation as per Companies Act, 2013?

Solution: – There is no retrospective effect in depreciation. Because companies act provide only useful life and according to useful life, depreciation is to be calculated.

2. If in earlier year Block of assets method is followed, is it possible to continue the same?

Solution:- It is not possible to follow block of assets while calculating depreciation as per companies act 2013, Because companies act don’t provide rate it provide useful life of assets and useful life of assets is same weather company follow SLM method or WDV method.

3. If company is following Block of assets in earlier years, then how to calculate separate WDV as on 31/03/14 for each assets?

Solution: – Best solution of this is that use download ABCAUS excel depreciation calculation auto-opening WDV 01-04-2014-from-additions-date or you can recalculate in excel.

For this you need to find Original cost and Date of Purchase.

4. If there is opening WDV in Balance sheet and But Useful life is already Expired as per companies act 2013, then what is treatment of that opening WDV.

Solution: – As useful life is already expired then Whole WDV should be written off.

5. What if asset is sold during the year?

Solution: – 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.

6. Is it possible to consider useful life different then prescribed in schedule II?

Solution: – The useful life of an asset shall not ordinarily different from the useful

life specified in Part C, 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.

7. Is it possible to consider percentage of residual value different then prescribed in schedule II?

Solution: – 5% is prescribed percentage of Residual value, 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.

8. Weather all companies are required to follow depreciation as per companies act 2013? Is there any exemption to small companies? Is it also applicable to companies which have to follow depreciation as per different Acts?

Solution: – for companies whose assets where useful lives or residual value are prescribed by a regulatory authority constituted under an act of the Parliament or by the Central Government. These companies will use depreciation rates/useful lives and residual values prescribed by the relevant authority.

And for all other companies the useful life of an asset shall not ordinarily different from the useful life specified in Part C and the residual value of an asset shall not be more than five per cent of the original cost of the asset.

Provided that where a company adopts a useful life different from what is specified in Part C or uses a residual value different from the limit specified above, the financial statements shall disclose such difference and provide justification in this behalf duly supported by technical advice.

DOWNLOAD DEPRECIATION CALCULATOR AS PER COMPANIES ACT, 2013 (Revised)

(Author can be reached at agicha.navin@gmail.com)

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31 responses to “FAQs While Calculating Depreciation as Per CA, 2013 & Calculator”

  1. Abhishek Goyal says:

    Question – There was one partnership firm which was converted in Company during the year. So what will be the date of Purchase, in case of Conversion takes place during the year?

  2. dadasaheb says:

    partnership firm converted in pvt ltd company on 01/04/2017 what is date of acquisition for assets taken over by company and life of assets for depreciation calculation under companies act 2013

  3. narasimhan says:

    how to take in to books of account the value of the asset which is donated. can we claim depreciation on donated asset?

  4. Bharath says:

    Dear sir,
    Few assets of a proprietorship concern are transferred to a new proprietorship concern. Does capital gains/loss get attracted here?
    If then how to calculate cost of acquisition of assets transferred? How will depreciation affect?

  5. silpa says:

    in the last year of useful life what is the treatment of residual value whether it is write off or not

  6. Nisha Sharma says:

    hello
    plese advice if an asset whose useful life already expired but residual value 5% is exsist in books and asset not in excistance.

  7. Ayush Sharma says:

    What treatment is to be done if opening value of asset is less than salvage value ? Whether we charge Depreciation ? Please Suggest

  8. CA MAYANK GARG says:

    4. If there is opening WDV in Balance sheet and But Useful life is already Expired as per companies act 2013, then what is treatment of that opening WDV.

    Solution: – As useful life is already expired then Whole WDV should be written off.

    The above WDV to be written off should be net of Tax or not?
    i.e. 100-30.9=69.1

  9. CA MAYANK GARG says:

    4. If there is opening WDV in Balance sheet and But Useful life is already Expired as per companies act 2013, then what is treatment of that opening WDV.
    Solution: – As useful life is already expired then Whole WDV should be written off.

    I would like to ask whether the above WDV to be written off should be net of tax
    (i.e 100-30.9=69.1)

  10. Jayesh Madhwani says:

    What should be the useful life of tools (Mechanical/Electrical) for depreciation purpose as per companies act 2013 ?

  11. PRIYANKA KABRA says:

    SIR,
    one of my client is following depreciation rates given in income tax act for his company but due to change in companies act 2013 now I have to follow dep method as per companies act. I had recalculated wdv as on 1 st april 2014 via rates given in companies act 1956, there is some surplus arising due to difference in total depreciation charged as per compnies act and income tax act.
    can you please tell me whether I am doing it correctly and treatment of surplus arised.

  12. Irfan says:

    What would be the treatment if useful is expired and there is residual value remained after useful life ? Should it be transferred to Reserve Or P& L Directly?

  13. Jatin sachdeva says:

    sir,
    your excel file (revised) is near perfect
    but miss the concept of deduction(asset sold during the year) from the net block

    please update your excel site

  14. Manish Agarwal says:

    If date of purchase is not available than how to calculate useful life

  15. NAGESH K says:

    Wheather the Residual value of assets its applicable for additions of assets or not?

  16. Sri Adarsh says:

    sir
    If the company is maintaining all corresponding assets under one block relating to plant and machinery. they purchased two assets in 2013 and another asset last year (2014). These are accounted under plant and machinery till last year and they are depreciated under WDV Menthod. then as per companies act 2013 how to calculate depreciation for purchased assets since last two years… and for the asset purchased last year

  17. b.sekar says:

    Dear Friends, I came to know that WDV new method of calculation is very cumbersome. But not for SLM method. Some companies who has capitalised tools value less than 5000/-, having more than 200 entries. what is the fate of the acct?. SEcondly, if the wdv of assets is less than residual value, what is to be done?. There is a solution to have debit or credit the REserve & Surplus a/c. Already exhausted value of assets, fate is also questionable. It is air in the sky.
    can anybody give permanent solution for this with a format, please send it to the following email ID. “chith1954@gmail.com”.

  18. Rkjain says:

    If an asset office equipment purchased 15 yrs having depreciation say 96000 till 31.3.14-what should be value of net block as per new act. Is residual value minimum 5% should be there and if yes 1000 is to be added to profit?

  19. Aishwarya says:

    If the company is taken over by other company, what will be the purchase date of asset? Will it be the date of take over by the new company?

  20. SATYA says:

    Sir,
    1. whether residual value is permitted to be calculted on wdv also or it is a must to consider actual cost of the asset. Because in most of the cases the prctical problem is to ascertain the acutal cost particularly when the assets are acqired some decades ago where books of account are maintained mamually and the clients are also under no obligation to maintain the records for more than 7 succeding years.
    2. I too have a doubt which closely resembles Anjalk query above.
    Please clarify at the earliest

  21. Anjalk says:

    We have wdv value as on 31.03.2014 of an asset whose useful life is over. Will we write off the whole amount of WDV or wdv less residual value?
    Suppose wdv of an asset as on 31.03.2014 is Rs 100,000 and residual value comes to say Rs 10000. In this case, what will be the amount to be written off from retained earnings? Will it be Rs 100000 or Rs 90000? And in case if it is then 10000 will be shown as wdv of the asset which will remain same till the asset is actually sold?

    • Ashutosh Vats says:

      @Anjalk
      Amount to be written off shall be Rs. 90,000 and not Rs. 1,00,000 because in this regard Schedule II states as follows-
      “7. From the date this Schedule comes into effect, the carrying amount of the asset as
      on that date—
      (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.”

      Reading above para, it is clear that in case the remaining useful life of an asset as per companies Act, 2013 is Nil as on 1.4.14 , the (carrying value i-e WDV) – (Residual Value) shall be charged against opening balance of retained earnings.
      and the residual value i-e Rs. 10,000 shall appear in the balance sheet till it is actually sold out!

  22. Vinay says:

    Hi sir please send any excel sheet for depreciation calculation to below mail id
    vinay241982@gmail.com

  23. Manjunatha says:

    Hi sir please send any excel sheet for depreciation calculation to below mail id

    manjunatha.k1987@gmail.com

  24. Manjunatha says:

    Hi,, Sir

    Some of Small Companies not maintained Fixed Asset Register and not available original cost and Date of Purchase, only available of data is Previous year WDV value and Block of asset Original Value in that situation how to calculate the deprecation or carry amount on the 31.03.2014 please provide any reverse calculation in that situation…

  25. Surbhi says:

    What is the method of classifying software as per schedule 2 of COMPANIES ACT,2013 ?
    Or, is there any clarification regarding to the working of intangible asset in the new schedule?

  26. Chirag Shah says:

    Dear Sir,

    Your excel sheet is ok. But it covers each head and not each asset. e.g. Plant & Machinery is covered in one raw item. But in reality there are numerous items having different purchase date, then how to incorporate all these items for depreciation calculation.

  27. aman says:

    thank you for the information.

  28. Pawan Maloo says:

    Treatment of assets of which useful life has been expired has not been depicted in the given depreciation calculation sheet. It would have given a precise view on the same. Many accountants have still confusion about what to adjust against reserves and can this adjustment increase the credit balance of your reserves or not. this remained unattended in this article.
    Pawan Maloo
    07738770841

  29. Vinod Tilwani says:

    This is a wrong method of calculating the rate of depreciation.

  30. Sudheer says:

    Sir,

    We find your article very descriptive. In this article you have pointed out that when useful life is completely expired whole WDV is to be written off. I think WDV shall be written off to such amount so that residual value remains continued.

    Another question is — one of my client is a society who followed Income Tax Depreceiation. Two years back they converted into Producer Company. In this scenario please explain how depreciation can be given. What shall be construed as Original Cost? The cost at which the assets are taken over or the original cost of purchase? Similarly put to use shall mean from Original date of purchase or from put to use in Company?

    Please clarify sir

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