- The introduction of Companies Act, 2013 method for calculating depreciation has changed.
- Schedule XIV has been replaced with Schedule II.
For a class of companies, specifically prescribed by MCA, can adopt useful life longer than prescribed in schedule II, but the same should be disclosed in Notes To Accounts with justification. For other companies, life cannot be longer than that prescribed in Schedule II.
Previously the asset whose cost was Rs.5000/- or less was made 100% depreciation , but now it shall be depreciated as per the provisions specified in Schedule II ( i.e as per is useful life )
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The total amount of depreciation = 30000 * 10 % i.e 3000
Revaluation Reserve Dr. 1000
P/L Dr. 2000
To Asset 3000
Depreciation will be 10 %
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Balance in Revaluation Reserve = 10000
Remaining Useful life as on 1/4/2014 as per Co’s Act
Exits | Does not exit |
The carrying amount as on 1/4/2014 depreciated over the remaining useful life of the asset as per Schedule. II. | Net Carrying amount after retaining Residual value, will be charged to opn Revenue Reserve. |
Formula for depreciation – S.L.M = (Cost – Scrap) / useful life
Formula for depreciation – W.D.V = 1 – (s/c)1/n ( ‘s’ stands for scrap, ‘c’ stands for original cost and its (1 – s/c)1/n , n stands for useful life )
useful life as per old provision – 20 yrs
useful life as per new provision – 15yrs
depreciation as per old prov (wdv) – 13.91%
depreciation rate as per new prov – 18.10 %
Expired Life – 5 yrs
Accumulated Dep for expired life – 52711
(Q) What shall be the carrying amount?
(A) 100000 – 52711 = 47289
(Q) What shall be the remaining useful life of the P.M?
(A) 10 yrs (life as per new prov – expired life)
(Q) What should be the rate of Dep ?
(A) 1 – ( Scrap value/Original cost)1/useful life i.e 1- (5000/100000)1/10 = 25.89%
useful life (old prov) – 20 yrs
dep old prov. – 13.91 %
useful life (new prov ) – 15 yrs
dep new prov. – 18.10 %
expired life – 16 yrs
accumulated dep – 90896
carrying amount – 9104
Since there is no useful life as per schedule II i.e. the remaining useful life is NIL. the carrying amount (i.e. 9104) as reduced by the Scrap Value (i.e. 5% of 100000 ) should be charged to opening retained earnings
Entry as on 1/4/2014
- Opening retained Earnings A/c Dr. 4104
- To Asset A/c 4104
Year of acq | Original Cost | No. of yrs used as on 31/3/2014 | Dep charged as on 31/3/2014 as per Sch XIV | Srap value
(5% of orginal cost) |
Useful life as per sch II | Remaing useful life | Amount to be charged to Opn Rev. reserve |
Dep
(14-15) |
02-03 | 100000 | 11 | 6963
So net ca = 3037 |
500 | 10 | 0 | 2537 | – |
04-05 | 100000 | 10 | 6330
So net ca = 3670 |
500 | 10 | 0 | 3170 | – |
05-06 | 100000 | 8 | 5064
net ca 4936 |
500 | 10 | 2 | – | 2218 |
This requirement of calculating dep as per Sch II was voluntary wrt F.Y. commencing from 1/4/2014 but mandatory for F.Y 1/4/2015 onwards.