As per companies act 2013, the depreciation is calculated on the basis of useful life of asset. Schedule II of companies act 2013, provides for useful life of depreciable assets which can be used to calculate depreciation based on WDV and SLM method. Till now we used to calculate the depreciation as per schedule IV of the companies act 1956. From 1st April 2014 onwards, depreciation will be calculated as per companies act 2013. Let us discuss depreciation calculation as per companies act 2013 . Download here all the relevant information.
Depreciation as per companies act 2013, will be calculated in two parts:
- Asset purchased on or before 31.03.2014
- Asset purchased between 01.04.2014 to 31.03.2015
Let us discuss the above one by one.
Asset purchased on or before 31.03.2014
We are having WDV and depreciation claimed till 31.03.2014 from audited financial statement 2013-14. Now we need to calculate depreciation based on useful life. So we can refer schedule II and find out the useful life of respective depreciable asset. Now we need to find out the rate of depreciation based on useful life. The formula for depreciation rate is
= ((1)- (salvage value/ WDV as on 31.03.2014)^(1/ remaining period of useful life))*100
Salvage value = 5% of the original cost
Note: if you want to take salvage value less than 5% of the orginal cost than you should disclose justification for the same.
Remaining period of useful life = total useful life as per schedule II less useful life already passed till 31.03.2014.
Note: you may also take useful life as per AS 6. Life as per AS-6 means, life estimated by Management. As per “Application Guide on the Provisions of Schedule II to the Companies Act, 2013” issued by ICAI, if “Estimated life (as per AS-6) ” is less than “life prescribed under schedule II”, than assets “MUST” be depreciated over “Shorter life as per AS-6” by giving proper discloser in Financial Statements after taking technical advise. However, if life as per AS-6 is higher than life as per Schedule II, the management have following 2 options – Option (1) : Depreciate assets over the life as per schedule II, or, Option (2) : Depreciate assets over life as per AS-6 by giving proper discloser in Financial Statements after taking technical advise.
After calculating the rate from the above formula multiply it with WDV as on 31.03.2014. you will get the depreciation for year 2104-15.
Asset purchased between 01.04.2014 to 31.03.2015
The formula for depreciation rate is
= ((1)- (salvage value/ original cost of the asset)^ (1/ useful life of the asset))*100
Salvage value = 5% of the original cost
Note: if you want to take salvage value less than 5% of the original cost than you should disclose justification for the same.
Original cost of the asset = purchase price of the asset
Note: you may also take useful life as per AS 6. Life as per AS-6 means, life estimated by Management. As per “Application Guide on the Provisions of Schedule II to the Companies Act, 2013” issued by ICAI, if “Estimated life (as per AS-6) ” is less than “life prescribed under schedule II”, than assets “MUST” be depreciated over “Shorter life as per AS-6” by giving proper discloser in Financial Statements after taking technical advise. However, if life as per AS-6 is higher than life as per Schedule II, the management have following 2 options – Option (1) : Depreciate assets over the life as per schedule II, or, Option (2) : Depreciate assets over life as per AS-6 by giving proper discloser in Financial Statements after taking technical advise.
After calculating the rate from the above formula, calculate the depreciation as follows:
= original cost of the asset*depreciation rate* no of days assets used/365
The first sheet of the excel contains instructions. The second sheet is for depreciation of the asset purchased before 31.03.2014. the third sheet is for depreciation of the asset purchased between 01.04.2014 to 31.03.2015. You need to fill the only the white cells. The highlighted rows will get automatically filled.
In the last sheet, you need to combine the both depreciation of both sheets to get the final figure of depreciation for year 2014-15.