GN (A) 35- Guidance Note on Accounting for Depreciation in companies in the context of Schedule II to the Companies Act, 2013
1. Schedule II to the Companies Act, 2013, specifies useful lives for the purpose of computation of depreciation. The said Schedule II was further amended by the Ministry of Corporate Affairs (MCA) through its notifications G.S.R. 237(E) dated March 31, 2014 and G.S.R. 627(E) dated August 29, 2014, respectively. As compared to Schedule XIV to the Companies Act, 1956, Schedule II, instead of specifying rates of depreciation for various assets, specifies that depreciation should be provided on the basis of useful life of an asset. While Schedule XIV was prescriptive in nature as it specified the minimum rate of depreciation, Schedule II provides indicative useful lives for various As a consequence, the companies are in a position to charge depreciation based on the useful life of an asset supported by technical advice, even though such lives are higher or lower than those specified in the said schedule. In view of this, depreciation charged as per the useful life is true commercial depreciation bringing the financial statements prepared accordingly closer to those prepared in accordance with international standards.
2. In this Guidance Note wherever the term ‘Schedule II’ is used it refers to Schedule II to the Companies Act, 2013, and wherever term ‘Schedule XIV’ is used it refers to Schedule XIV to the Companies Act, 1956, unless specified otherwise.
3. Overview of some of the key changes in Schedule II as compared to Schedule XIV are as follows:
4. This Guidance Note is issued with the objective to provide guidance on certain significant issues that may arise from the practical application of Schedule II with a view to establish consistent practice with regard to the accounting for depreciation.
5. This Guidance Note includes relevant provisions of Schedule II and provides guidance on implementing the requirements of Schedule II.
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