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

  1. Rishab Garg says:

    Dear Sir,

    Is there any restriction on calculating period for depreciation on the basis of days or months? means one can calculate depreciation according to 365 days or 12 months..

  2. 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?

  3. 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

  4. 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?

  5. 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?

  6. silpa says:

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

  7. 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.

  8. 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

  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.

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

  10. 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)

  11. Jayesh Madhwani says:

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

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