Depreciation as per
Schedule II of
Companies Act 2013
Presented By : Niraj Doshi
M.V.Damania & Co.
Chartered Accountants
Scope & Coverage
Introduction
Classification of Companies
Important terms and definitions
Method of Depreciation
Salient Features of Schedule II
Key Impacts
Practical issues
Introduction
 Depreciation is based on Specified Useful
Life over Specified minimum rates as
specified in earlier Act.
 The Ministry of Corporate Affairs (MCA) vide
its Notification dated 26-03-2014 has
appointed 01-04-2014 as the date from which
Schedule II comes into force.
Classification of Companies
 All companies are divided into broad three categories in order to
decide application of depreciation :-
1. Class of companies as may be prescribed and whose financial
statements comply accounting standards prescribed for such class
of companies under section 133 These companies will provide depreciation based on use useful lives
and residual values prescribed in the schedule II.
These companies are permitted to adopt a different useful life or
residual value for their assets, provided they disclose justification on
this behalf duly supported by technical advice.
Continued…
2. Class of companies or class of assets where useful lives or
residual value are prescribed by a regulatory authority
constituted under an act of the Parliament or by the Central
Government –
Example :- (Electricity companies, Insurance companies
etc)
3. Other companies –
For these companies, the useful life of an asset shall not be
longer than the useful life and the residual value shall not
be higher than that prescribed in Part C of Schedule II.
Important Terms & Definitions
 Depreciation is the systematic allocation of the depreciable
amount of an asset over its useful life. The depreciable
amount of an asset is the cost of an asset or other amount
substituted for cost, less its residual value.
 Useful Lives :- Unlike the Companies Act 1956, Useful lives of
the assets have been prescribed instead of rates of
depreciation in Part C of Schedule II of the Companies Act,
2013, as a base for computing depreciation.
 Carrying Amount :- Carrying amount means the amount at
which an asset is recognized in the Balance Sheet after
deducting any accumulated Depreciation/amortization and
accumulated impairment losses thereon.
Method of Depreciation
 Unlike old Schedule XIV, the new Schedule II, does not speak
of Method of Depreciation as SLM or WDV. It only speaks of
amortization of cost of assets based on the useful life .
 Since no method is prescribed, the company can follow either
SLM / WDV / Unit of Production (UOP) method and arrive at
the rate on the basis of useful life.
 UOP Rate = Total Cost – Residual Value
No. of Production Unit
Continued…
 SLM Rate = (Cost of Asset - Residual Value)
Useful Life
 WDV Rate will be arrived at by applying the following
formulae:
r = 1-(s/c)^(1/n), Where
r = rate of depreciation
s = scrap value
c = cost of assets
n = no. of year of life of assets
Salient Features of Schedule II
 Depreciation is calculated by considering useful life of asset, cost
less residual value.
 Schedule – II contains a list of useful life according to class of asset,
the useful life of asset shall not be taken longer than prescribed in
this schedule.
 Residual value should not be taken more than 5% of cost of asset.
 A company is always free to take useful life shorter than mentioned
in schedule – II and residual value less than 5%.
 If there is any addition to the asset or asset is sold, discarded,
demolished or destroyed then the depreciation will be provided on
pro-rata basis upto the date of such event.
Continued…
 For assets in which NESD is mentioned in Schedule – II, the
depreciation remains same irrespective of the no. of work shifts.
 For other assets, if the asset is used for double shifts during any
time of the year then the depreciation shall be increased by 50% for
that period. Similarly if asset is used for triple shifts then
depreciation shall be increased by 100% for that period.
Key Impacts
 The useful life of an asset can be number of production or similar units
expected to be obtained from the asset. This indicates that a company may
be able to use UOP method for depreciation, which is currently prohibited
under Schedule XIV.
 Companies will be able to use different useful lives or residual values, if
they have justification for the same. It appears that this provision is aimed
at ensuring compliance with Ind-AS 16 for such companies.
 Vide Notification G.S.R 627(E) dated 29th August 2014 - Component wise
depreciation accounting is made voluntary for the F.Y. 2014-15 and it will be
mandatory from the F.Y 2015-16.
 Where asset is still in use but useful life has been passed out & only
residual value appears in balance sheet, then no depreciation needs to be
provided on such asset till the same is disposed off.
Practical Issues
 The transitional provision requires remaining carrying amount to be
recognized in the retained earnings .
 What is the meaning of retained earnings ?
“Profits generated by a company that are not distributed to the
stakeholders and kept invested in the business rather than paying to
the stakeholders as dividend”.
 Schedule II provides that the residual value shall not be more than
5% of the cost of asset. That is to say it can be less than 5% under
this circumstance, the auditor needs to document the same with
either Management Representation (MR) along with certificate from
the technical experts within the Company or from the professional
value.
Illustration 1
 Depreciation as per SLM Method
Cost of assets (Computer Purchased) Rs.5,00,000 /Date of Purchase
01.04.2010
Rate of Depreciation as per Schedule IV 16.21%
Useful Life
6 Years
Residual Value
25,000/-
Amount to be Depreciated (Cost – Residual
value i.e 5,00,000 – 25,000 (5% of Cost))
4,75,000/-
Useful Lives as per Schedule II
3 Years
Expired Life of Asset upto 31.3.2014
4 Years
Depreciation charged till 31.03.2014
(500000*16.21%*4)
3,24,200
Carrying value charged to retained earning as
on 01.04.2014
1,50,800
Continued…
 Useful life as per schedule II is already passed out, the
balance of carrying amount after retaining the residual
value will be charged to the retained earnings.
 As referred in above example WDV of assets as on
31.3.14, Rs. 5,00,000 – 3,24,200 = 1,75,800. Since
the useful life have been expired. Carrying amount
less residual value will be transferred to retained
earnings i.e 1,75,800– 25,000 = 1,50,800.
Illustration 2
 Depreciation as per SLM Method
Cost of assets (Computer Purchased)
Rs.60,000 /-
Date of Purchase
01.04.2013
Rate of Depreciation as per Schedule IV
16.21%
Useful Life
6 Years
Residual Value
NIL
Amount to be Depreciated (Cost – Residual value i.e
60,000 – 3,000 (5% of Cost))
57,000/-
Useful Lives as per Schedule II
3 Years
Expired Life of Asset upto 31.3.2014
1 Years
Depreciation charged till 31.03.2014 (60000*16.21%*1)
10,000
Carrying value of asset as on 01.04.2014
50,000
Balance life available for depreciation
2 Years
Depreciation for each year will be ((50,000-3000=
47,000) divided by 2 years)
23,500
Disclosures
 The following information shall be disclosed
in the accounts, namely :• Method of depreciation used; and
• The useful lives of the assets for computing
depreciation, if they are different from life
specified in the Schedule II of the Companies
Act 2013.
Any Questions ?