Query:-Acquirer Limited acquired an engineering unit of Acquiree Limited, on a going concern basis. The unit has various fixed assets such as building, plant and machinery and furniture, which were recognized in the books of Acquirer Limited at their fair value, on the date of acquisition. Acquiree has already used these assets for certain periods and claimed the depreciation thereon. For example, it has used the building for 20 years and its remaining useful life as per schedule XIV to the Companies Act, 1956, in the books of Acquiree, is 38 years. Acquirer Limited is evaluating whether it can consider the useful lives of these assets afresh or it needs to reduce the period of usage by the acquiree in arriving at useful lives as per Schedule XIV?

Answer:- Both schedule XIV and AS 6 Depreciation Accounting are silent on the issue of application of schedule XIV rates to second-hand assets. However, schedule XIV, as currently drafted, seems to fix the maximum life over which an asset should be depreciated. We believe that two companies are using the same asset over different periods of time may not be a valid reason for depreciating it over a period exceeding the life fixed under the schedule XIV. Keeping this in view, Acquirer Limited should reduce the period of usage by the acquiree in arriving at useful lives of fixed assets as per Schedule XIV. For the reason that this may be impracticable in some cases, and in the absence of any express prohibition to determine a fresh start depreciation rate, the view to determine useful lives afresh on second-hand assets cannot be outrightly rejected.

More Under Finance

Posted Under

Category : Finance (3499)
Type : Articles (14831)

Leave a Reply

Your email address will not be published. Required fields are marked *