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New Depreciation Rules, Companies Act, 2013

Posted @ March 29, 2015, 7:11 am under (Company Law (MCA))

Schedule II comes into force w.e.f. 1.04.2014 wherein Depreciation will be based on the useful life of assets vide MCA Notification dated 26 March 2014.

In the new schedule (Part C of Schedule II of the Companies Act, 2013) useful lives of the assets have been prescribed as a base for computing depreciation instead of rates of depreciation as per the Companies Act, 1956.

All companies shall be classified into three categories to determine the application of useful lives.

1.      In prescribed class of Companies who comply with Accounting Standards.

2.      Class of Companies or Class of assets, whose useful lives or residual values are prescribed by any statutory authority or legislation (Electricity companies, Insurance companies etc.,)

3.      Other companies.

New concept of Component introduced with the Companies Act, 2013. Where cost of a component of the asset is significant to the total cost of the asset and useful life of that component differs from that of the asset, then the useful life of that component shall be determined separately and depreciation is calculated accordingly. Accounting standards (Ind AS16) also prescribe the same.

Transitional Provisions: The carrying amount of the asset as on 01.04.2014 shall be:

·        depreciated over the remaining useful life of the asset according to the Companies Act, 2013 or

·        If the remaining useful life is nil, then any carrying cost other than Residual Value will be recognized in the opening retained earnings.

 

Under the old Act assets whose actual value does not exceed Rs. 5000 shall be provided depreciation at 100%. But there is no such specific provision under the Companies Act, 2013.


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