CA Niketa Mehta

From the Auditor’s point of view: Brief note on calculation of Depreciation as per New Company’s Act 2013

♣ Following are the steps for the calculation of Depreciation on existing Asset:

1.     Find out useful life as per new schedule

2.     Calculate already expired useful life

3.       Difference of above two

4.       Take Residual life at 5% of historical cost or as per management estimate (For value exceeding 5 % technical justification is required.)

5.     Depreciable Amount = Historical cost/ revalued value – Residual value as calculate in the above step 4.

6.     If SLM is followed, Amount of depreciation P. a. =Depreciable amount / Remaining useful life

7. If WDV method is used, need to find out rate of depreciation by using following formula and charge depreciation accordingly.

(1-(s/c)^(1/n))*100 where S = Salvage Value, C= Carrying Amount as on 01-04-14, N= Difference of useful life as per new and old schedule

♣ Pro rata Depreciation (New Asset acquired during the year) In the 1st year

1.    Calculate the period from the date of purchase to the closing of accounting year.

2.    Find out rate of depreciation per annum by using useful life as per Schedule II ( comparative rates are given in the reference book based on certain percentage of residual value)

3. Calculate the depreciation for the fraction of period calculated in step 1.

In subsequent Year

1.     Carrying amount as on the beginning of year.

2.     If WDV method is used then find out rate of depreciation as per following formula

(1-(s/c)^(1/n))*100 where S = Salvage Value, C= Carrying Amount as on 01-04-14, N= Difference of useful life as per new and old schedule

3. If SLM is used then carrying amount is amortized over the remaining useful life.

Treatment of Revaluation Reserve:

1.     Additional Depreciation cannot be charged to Revaluation reserve as per new companies Act, 2013.

2.     Whenever the asset is retired / disposed then already created revaluation reserve need to transfer to general reserve.

Transition Provision:

1.       Remaining useful life is Nil then carrying amount as on 01-04-2014 after retaining residual value need to be adjust in the opening retain earning after giving effect of deferred tax impact.

2.     Alternatively, Transitional loss can be charged to profit and loss. This becomes an exceptional item as per schedule II.

Change in method of calculation (From WDV to SLM or vice versa)

1. It is considered as change in the accounting policy. Effect of change should be quantified and disclosed as per AS 6.

♣ Calculation of effect of change as per As 6 are as follow:

1.     Recalculation of WDV as per new method.

2.     Find out difference as per old and new method.

3. Surplus/ Deficit is charged to P & Loss account.

General points:

1.     Whenever there is a deviation between estimation made by the management (As per AS 6) and Schedule II, technical justification with reason should be disclosed in the financial statement.

2.     Double shift and Triple shift depreciation except for the asset defined as NESD( NO Extra Shift Depreciation), will increase by 50% and 100% of depreciation calculated respectively.

3.     If Remaining useful life is 1 year then 100% depreciation can be claimed.

4.Addition of value less than Rs. 5000/- will be treated as revenue nature. ( No need to charge the depreciation as per schedule II)

5. Component Accounting:

  • If any component of property, plant machinery is significant then that component can be depreciated separately.
  • Useful life can be estimated separately if it is different from the main Asset.

SUGGESTION: BECAUSE OF CHANGE IN CALCULATION OF DEPRECIATION IT IS PREFERABLE TO USE SLM METHOD.

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43 responses to “Calculation of Depreciation under Company’s Act 2013 with Calculator”

  1. jayaraj says:

    remaining useful life is 4 years and 242 days in the earlier mentioned case.

  2. jayaraj says:

    if wdv as on 1/4/2015-Rs25509/-for plant and machinery in a factory.The factory operates three shifts.no.of days single shift 122 days,double shift-122 days,triple shift-33 days.depreciation rate single shift-13.91%,double shift-20.87%,triple shift-270.82%.The company following WDV method.

    What is shift wise depreciation for the year ? how to compute?

  3. SS RAO says:

    Dear Sir

    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.

    When we follow the method of computation of depreciation pronounced in Sch II of Companies Act under WDV method, the residual value is not matching with Scrap value fixed initially.

    Small illustration has been provided below:

    Cost of the asset 100000

    Life of the asset 5 years

    Date put to use 1st July 2015

    Method of Depreciation Written Down Value method

    Scrap value 500

    Rate of Depreciation 65.34%

    Year Depreciation WDV

    1 49,096 50,904

    2 33,262 17,642

    3 11,528 6,114

    4 3,995 2,119

    5 1,385 734

    6 120 615

    Kindly explain how to deal with the difference amount of Rs.115 i.e. 615-500

    With regards

  4. HIMANHSU GUPTA says:

    DEAR SIR,

    1ST FORMAT IS SOO EASY AND USER FRIENDLY,

    BUT I HAVE SOME DOUBT, THAT FOR EXAMPLE WE PURCHASE A COMPUTER ON 31.03.2012 OF RS. 500000 AND WDV ON 31.03.2015 IS RS. 300000 SO IN THE 1ST COLOMN I WILL MENTION PURCHASE DATE THEN IN THE AMOUNT COLOMN WHICH AMOUNT I WILL MENTION I.E 300000 OR 500000
    PLZ REPLY ASAP

  5. Ravi Arora says:

    Please clarify what would be the tax implication of surplus credited in P&L account on account of retrospective computation of depreciation (in case of shift from WDV to SLM)

  6. NIDHI AGARWAL says:

    Hi sir,
    under which head software will be shown as per new companies act 2013 nd also show me the computation of depreciation of software whose book value is 18000 acquired on 25/12/2014.
    reply asap

    Thanks.

  7. Chirag says:

    My query is if the useful life of the asset is nil and the carrying amount is less than the residual value,what should be the treatment in books? For Example: 1. if WDV is 200 and residual value is 500 then how will it be treated? 2. if WDV is 800 and residual value is 500 then how will it be treated? – See more at: http://taxguru.in/company-law/depreciation-companies-act-2013-practical-approach.html#sthash.zRQ1bhhj.dpuf

  8. Aakash says:

    If the Companies policy is to depreciate the asset for the whole year,irrespective of date of purchase of asset.Depreciation is charges for the whole year.

    Is it allowed as per Companies Act 2013 ? or any the depreciation is to be calculated on day basis only ?

  9. Chirag says:

    Pleace explain what will be the impact of change in Depreciation as per Companies Act 2013 on deffered tax? Particulary impact of fund transfer to retained earnings.

  10. Lalit says:

    What will be the useful life of the asset if it is transfered from a group company.
    Also what will be the useful life of a second hand asset purchased will it be from the actual purchase date of the previous owner or from the date of transfer from the first owner to second owner?

  11. Priya Jayan says:

    My doubt is about surplus or deficit arising out of retrospective calaulation of depreciation. How it can be shown in financials.

  12. AMOL S AKLE says:

    Sir, how to calculate remaining useful life if laptop is purchased on say 23-04-2014 for Rs. 60,000/-. As per S-II, its life will be 3 yrs and by using formula to calculate rate of depreciation under WDV method we will arrive the rate of depreciation @ 63.16%….

    Question is while calculating depreciation for year ended 31.03.2015 remaining life of asset should be 3 years or 3.06 yrs or anything else?? kindly give the procedure for the same???

  13. jenit says:

    which schedule is applicable for calculation of depreciation under company act 2013

    and what are the rates

  14. rakesh kumar says:

    How to calculate depreciation if we don’t have purchase values and dates of individual asset but having purchase value of block of assets.

    Suggest me any method how to calculate depreciation.

    thanks

  15. rakesh kumar says:

    How to calculate depreciation if we don’t have purchase values and dates of individual asset but having purchase value of block of assets.
    suggest me any method how to calculate depreciation.

    thanks

  16. Ram says:

    Dear All,
    thanks for sharing all view, may i know that we have purchased various machinery in last 10 years, and all machinery having separate life, but all are in plant and machinery head. Question 1. how can we justify the life of machinery separately. 2nd … which amount we need to take as on 01.04.2014 according to new depreciation chart.
    please suggest me.

  17. SIVAPRASAD says:

    Sir,

    One of my dobt regarding the depreciation is , how we calculate the depreciation of an asset purchased on February 2015?.

    Whether the used life of that asset can be treated as one year?
    Or whether the depreciation is to be calculated on number of days used basis?

  18. Varsha says:

    How To Calculate Depriciation As per Companies Act 2013 on Asset Being Sold in Current Year. (Depriciation As per WDV method)
    Originally Assets (Tractor) Purchased on 26/04/2010 For Rs 360000 and Sold on 18/10/2014 For Rs. 182000

  19. Akhilesh Sharma says:

    Hi Deepika Sital,
    25.03.15 / 03:31PM

    in your first example,no scrap value taken in calculation of depreciation. as per law it is not possible that any asset have Zero scrap value.
    the solution may be:

    Depreciation = (7.881-0.50)/17 = 0.4342 Crore.

    your reply awaited ???

  20. rahul tallam says:

    Pro rata depreciation :

    Suppose a asset is purchased July 2011 having useful life 5 years (old) as per sch II its 3 yrs. now as of 1 april 2014 should we consider that 2yrs 10 months has expired or 3 yrs being 3 F.Y? based on this by impact to reserves is determined.

    Please help.
    Thank you.

  21. Nirav Doshi says:

    at Hitesh K C and at Xavier regaarding arrive at depreciation rate in case of remaining useful life is in years plus some days.

    Simply modify this formula ((1-(s/c)^(1/n))*100)

    instead of (1/n) keep it as (365/Remaining Useful life in Days)

    Hope your query is now resolved

  22. Nirav Doshi says:

    @ Hitesh K C and @ Xavier regaarding arrive at depreciation rate in case of remaining useful life is in years plus some days.

    Simply modify this formula ((1-(s/c)^(1/n))*100)

    instead of (1/n) keep it as (365/Remaining Useful life in Days)

    Hope your query is now resolved

  23. ANIL BHOOT says:

    Dear Gajendra ji

    1. 12.75
    2. carrying cost

  24. ANIL BHOOT says:

    Dear Deepak ji

    You have to get certificate for residual life of the machine & then proceed

    ANIL BHOOT

  25. Deepak says:

    Dear Sir/madam

    My Question is we purchased Old Printing machinery as ib 04/04/2014 from UK which is used 25 years with cost of Rs 1.5 Crores . now question is the what is the usefull life of asset it is Nil ?

  26. Mohit Gupta says:

    Can Anyone tell me how to calculate rate of depreciation, If there is a addition to fixed Assets during the year. Whether this formula (1-(s/c)^(1/n))*100 be give the correct result in such case also. Please reply if anyone have some solution of this problem.

  27. Gajendra T S says:

    Case:

    Date of acquisition of asset: 01.01.2012
    Original Cost: Rs.100000
    Carrying amount as on 01.04.14: Rs.71545
    Scrap Value: Rs.5000
    Method of Depn: WDV
    Life of the asset as per New Act: 15 Years

    Doubts:

    1. As per new provisions of Companies Act,2013, remaining useful life of the asset (n) would be 12 years or 12.75 years?

    2. In formula (1-((S/C)^(1/n))*100;
    C = ‘Original cost’ or ‘Carrying cost as on 01.04.14’ for the above mentioned case?

    Thank You.

  28. Anjali Negi says:

    Please confirm me whether the effect of change in accounting policy due to change in method of depreciation from WDV to SLM will have any impact on deferred tax calculation or not?

  29. Vishal Gupta says:

    How to calculate deprecation rate as per WDV in case of Scrap Value of an assets are NIL (0) . Formula given for calculating WDV rate is not working in Nil Scrap Value.
    For Exmp : If an assets purchased on 01-06-2012 for Rs. 260000 and WDV as on 01-04-2014 is 194000. and scarp value is NIL. Then how to compute the WDV Rate????????????????????

  30. JAsmeet Singh says:

    KIndly suggest the formula for WDV if residual value is NIL. The aforesaid formula is not working

  31. himanshu says:

    sir,

    how to use formula (1-(s/c)^(1/n))*100

    orig. cost(plant & Machinary) 5000
    Residual value 5% of original cost
    and remaning life 5 Year
    and machinary Useful life 10 year

    if (1-(250/5000)^(1/5)*100

    please solve my question

  32. Rajeev says:

    Dear Sir,

    Can you help me for calculation of depreciation, retained earning etc. in respect of following ?

    Original Cost of Computers – Rs.10.00 Lac,
    Useful Life under Companies Act 2013 is 3 years,
    Date of Purchase is 15.04.2009
    Accumulated Depreciation up to 31.3.2014 is Rs.7.30 Lac.
    All the computers are sold during the FY 2014-15 for Rs.1.20 Lac

    What will be accounting entry in the books of account and calculation of depreciation, retained earnings, etc. for the FY 2014-2015.

    Regards
    Rajiv

  33. Shubhangi Goel says:

    Is it necesaary to keep the residual value of the asset in Balance Sheet if the remaining life of the asset has exhausted and depreciation wont be charged on that asset. or can the whole WDV be charged the whole WDV to Retained earnings?

  34. hitesh k c says:

    when the remaining useful life as at 1st april 2014 is say 2 yrs and 135 days how to arrive at rate of depreciation and amount of depreciation under wdv and slm method as per sch II. Though we all know that seldom any assets is purchased on 1st april and sold on 31st march, I could not find any article / example which shows how to calculate dep as per sch II where useful life is number of years plus some days.Can anyone give an example?

  35. Rishabh Bansal says:

    How to provide Dep. on plant & Machinery with following data
    Date of Purchase:- JAN 2004
    Purchase cost:- NOT Available
    WDV as On 1-4-2014: 33,16,000.00
    Addition in 2012: 15,00,000.00(This addition was in form of extending life of machinery)

    What will be the Dep. for 2014-15

  36. Xavier says:

    Hi,

    WDV: Formula (1-(s/c)^(1/n))*100 works only if the asset is purchased on 01-04-20xx. For assets purchased during any other days, the formula doesn’t work; to mention more specific, the residual value (RV) does not match with the expected RV, when the captioned formula is applied on assets purchased any day which is NOT 01-04-20xx.

    Plase let us know if you have a solution!

    Thanks!

  37. Pratik Surve says:

    can somebody help me?
    as the most of the companies follows the block of asset method
    i have the WDV of block containing 6-7 assets with different date of purchases,
    of which some of the asset should have written off from books before 1.4.14 as per companies act 2013 schedule II.
    and i don’t have WDV of individual assets
    what should i do to find out depreciation to be charged for current year and net block of asset at the year end 31st march 2015 ?

  38. Nandish Doshi says:

    sir.
    how to calculate in SLM Method..
    Suppose ex : 15-05-13 asset value is 40000 .so how to cal.as per comp.act 2013
    first year I can calculate depreciation as per old method. 40000*6.33*320/365= 2220
    now i m very confused so how can cal.as per new act 2013 for F.y 2014-15, f.y 2015-16, F.y 2016-17. following year.

    pls calculate as per following year for new act 2013..

  39. Deepika Sital says:

    Hi Ritesh, query dt.24th March 2015
    As per the Schedule II, we would have to consider the useful life of an asset as per this Schedule II mandatory w.e.f 1-4-2015. This means that an asset’s useful life would be compared with the existing Estimated Useful life of that asset. Now we will have to see whether there is any remaining useful life left in accordance with the New Useful life or not.
    For eg-
    1.) An asset was purchased on 1-4-2000 for Rs.10 crore and was depreciated @1.63% (on SLM). In 2013,Sch.II was introduced specifying its useful life as 30 yrs.
    Now depreciation till 2013= 10cr * 1.63% * 13 yrs = Rs.2.119 cr approx for 13 years
    Carrying Amount =10cr – 2.119 cr = Rs. 7.881 cr approx. which shall be charged for the balance 17 years (30- 13 yrs)
    Thus ,Depreciation = 7.881 /17= Rs. 46.35 lakhs to be charged to P&L A/c for remaining useful life

    2.) Taking the same example, the date of purchase is 1-4-1980 and Residual Value Rs.10 lacs,
    In 2013, the expired life – 1980- 2013 = 33 years
    Therefore, remaining Life in 2013 = 30-33 = NIL (One must note that there is no concept of negative life)
    Thus, now Depreciation till date = 10 cr * 1.63% * 33 yrs = Rs.5.379 cr. approx
    Carrying Amount in 2013= 10-5.379 = Rs.4.621 cr
    Less: Residual Value = Rs. 10 lacs
    Balance Carrying Amount = Rs.4.521 cr. shall be transferred to Opening Retained Earnings.
    The Asset shall be shown at Residual Value till the time it is not disposed / sold from the enity.

    Hope my reply gives you the solution to your query.

  40. Deepika Sital says:

    Hi Harprakash, query dt.18th March 2015 at 10.55am
    As per the Schedule II, assets with a value lower than Rs.5,000/ shall not be treated as REVENUE nature item. Instead, such assets shall also be depreciated as per the Useful life set for such an asset in the Sch.II. Earlier , assets whose actual cost does not exceed Rs.5,000 were depreciated at 100% but as per the amendment, the asset will be depreciated in accordance with their useful lives. Therefore , no more Monetary limit now for assets!!

  41. Ritesh says:

    If useful life as per old schedule is more than new schedule then N will be negative and how we will proceed further.Please Clarify useful life is whole life of asset or remaining life of assets.

  42. Haprakash says:

    “Addition of value less than Rs. 5000/- will be treated as revenue nature. ( No need to charge the depreciation as per schedule II)”

    Can you explain this ? Is it mentioned in the schedule II ?

  43. Neerav Wani says:

    Hi. Thanks for sharing.
    How would the transitional provisions apply in case of an plant and machinery which has been depreciated on double shift basis till 01.04.2014. Should the useful life be adjusted for the period the asset was used on a double shift basis ?

    Thanks.

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