DEPRECIATION UNDER THE COMPANIES ACT, 2013

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CONTENT Overview On Depreciation As Per Companies Act, 2013 | 03 Useful Life Of Assets & Depreciation Rates | 07 Notes On Depreciation As Per Companies Act, 2013 | 11

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OVERVIEW ON DEPRECIATION AS PER COMPANIES ACT, 2013 The Ministry of Corporate Affairs (MCA) vide its Notification dated 26-03-2014 has appointed 1.04.2014 as the date from which several provisions of The Companies Act, 2013 come into force. One among the notified provisions is Schedule II which pertains to Depreciation. The salient features of Schedule II are elucidated here under:

Useful Life : 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. All companies shall be classified into three categories to determine the application of useful lives. Notified Class Of Companies

Applicability

Prescribed class of Companies who comply with Accounting Standards prescribed for them (this class of companies is yet to be notified)

These companies can opt either to use useful lives and residual values prescribed in Schedule II or different useful lives or residual value for their assets, provided they disclose justification for the same.

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.,)

These companies will use depreciation rates or useful lives and residual values prescribed by relevant authority or legislation for depreciation purposes

Other companies

The useful life of an asset will not be longer than the useful life and residual value will not be higher than that prescribed in the schedule.

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OVERVIEW ON DEPRECIATION AS PER COMPANIES ACT, 2013 Component Approach : The useful lives prescribed in Part C of Schedule II pertain to whole of the assets. 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. This is called Component Approach. This concept of accounting which was hitherto not there has been introduced with the Companies Act, 2013. This approach is in consonance with the depreciation computation prescribed in Indian Accounting standards (Ind As 16).

Multiple Shifts : Unlike Companies Act, 1956, no specific rates for double shift or triple shift are prescribed under the companies Act, 2013. If any asset is used for double shift for any time during the year, the depreciation will be increased by 50% for that period and in case of triple shift it is 100%.

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OVERVIEW ON DEPRECIATION AS PER COMPANIES ACT, 2013 Depreciation On Revalued Assets : As per Guidance note given by the Institute of Chartered Accountants of India (ICAI) on “Treatment of Reserve created on Revaluation of Fixed assets”, only depreciation pertaining to historical cost needs to be provided out of current profits of the company. The additional depreciation araising on account of upward revaluation of Fixed Assets is to be transferred from Revaluation Reserve to Profit & Loss account. The above procedure is in vogue till now. But the scenario has changed with the introduction of new Companies Act. As per the Companies Act, 2013, the depreciable amount of an asset is the cost of an asset or other amount substituted for cost, less its residual value. Therefore, in case of revaluation, depreciation will be based on the Revalued amount. Consequently, the ICAI Guidance Note may not apply and full depreciation on revalued amount is expected to be provided. Transitional Provisions : The carrying amount of the asset as on 01.04.2014 will be depreciated over the remaining useful life of the asset according to the Companies Act, 2013 and if the remaining useful life is nil, then any carrying cost remained apart from Residual Value will be recognized in the opening retained earnings. CRK & ASSOCIATES Chartered Accountants Audit | Taxation | Advisory Services

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OVERVIEW ON DEPRECIATION AS PER COMPANIES ACT, 2013 Others : Where, during any financial year, any addition has been made to any asset, or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition or, as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed. Both the Companies Acts contain similar provisions Depreciation on assets whose actual value does not exceed Rs. 5000 shall be provided depreciation at 100% as per the Companies Act, 1956. But there is no such specific provision under the Companies Act, 2013 Apart from Straight Line and Written Down Value Methods of Depreciation, Unit of Production Method is also an acceptable method of depreciation under the new Act.

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SCHEDULE - II - PART C USEFUL LIFE OF VARIOUS ASSETS & DEPRECIATION RATES General Rates Nature of Assets I BUILDINGS [NESD] (a) Buildings (other than factory buildings) RCC Frame Structure

Double Shift

Triple Shift

Useful Life SLM Rate WDV Rate SLM Rate WDV Rate SLM Rate WDV Rate In Years

60

1.58%

4.87%

-

-

-

-

(b) Buildings (other than factory buildings) other than RCC Frame Structure

30

3.17%

9.50%

-

-

-

-

(c) Factory buildings (d) Fences, wells, tube wells (e) Others (including temporary structure, etc.)

30 5 3

3.17% 19.00% 31.67%

9.50% 45.07% 63.16%

-

-

-

-

II

30

3.17%

9.50%

10 5 3

9.50% 19.00% 31.67%

25.89% 45.07% 63.16%

-

-

-

-

(a) Plant and Machinery other than continuous process plant not covered under specific industries

15

6.33%

18.10%

9.50%

27.16%

12.66%

36.21%

(b) continuous process plant for which no special rate has been prescribed under (ii) below [NESD]

25

3.80%

11.29%

-

-

-

-

-

-

-

-

BRIDGES, CULVERTS, BUNDERS, ETC. [NESD]

III ROADS [NESD] (a) Carpeted roads (i) Carpeted Roads-RCC (ii) Carpeted Roads-other than RCC (b) Non-carpeted roads IV PLANT AND MACHINERY General rate applicable to plant and machinery not covered under special plant and machinery

Special Plant and Machinery (a) Plant and Machinery related to production and exhibition of Motion Picture Films 1. Cinematograph films—Machinery used in the production and exhibition of cinematograph films, recording and reproducing,equipments, developing machines, printing machines, editing,machines, synchronizers and studio lights except bulbs 2. Projecting equipment for exhibition of films (b) Plant and Machinery used in glass manufacturing 1. Plant and Machinery except direct fire glass melting furnaces —Recuperative and regenerative glass melting furnaces 2. Plant and Machinery except direct fire glass melting furnaces —Moulds [NESD] 3. Float Glass Melting Furnaces [NESD] (c) Plant and Machinery used in mines and quarries— Portable underground machinery and earth moving machinery used in open cast mining [NESD]

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13

7.31%

20.58%

10.97%

30.87%

14.62%

41.16%

13

7.31%

20.58%

10.97%

30.87%

14.62%

41.16%

13

7.31%

20.58%

10.97%

30.87%

14.62%

41.16%

8

11.88%

31.23%

-

-

-

-

10 8

9.50% 11.88%

25.89% 31.23%

-

-

-

-

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SCHEDULE - II - PART C USEFUL LIFE OF VARIOUS ASSETS & DEPRECIATION RATES General Rates Nature of Assets

Double Shift

Triple Shift

Useful Life SLM Rate WDV Rate SLM Rate WDV Rate SLM Rate WDV Rate In Years

(d) Plant and Machinery used in Telecommunications [NESD] 1. Towers 2. Telecom transceivers, switching centres, transmission and other network equipment

18 13

5.28% 7.31%

15.33% 20.58%

-

-

-

-

3. Telecom—Ducts, Cables and optical fibre 4. Satellites (e) Plant and Machinery used in exploration, production and refining oil and gas [NESD]

18 18

5.28% 5.28%

15.33% 15.33%

-

-

-

-

1. Refineries 2. Oil and gas assets (including wells), processing plant and facilities

25 25

3.80% 3.80%

11.29% 11.29%

-

-

-

-

3. Petrochemical Plant 4. Storage tanks and related equipment 5. Pipelines 6. Drilling Rig 7. Field operations (above ground) Portable boilers, drilling tools,well-head tanks, etc.

25 25 30 30 8

3.80% 3.80% 3.17% 3.17% 11.88%

11.29% 11.29% 9.50% 9.50% 31.23%

-

-

-

-

8. Loggers (f) Plant and Machinery used in generation, transmission and distribution of power [NESD]

8

11.88%

31.23%

-

-

-

-

1. Thermal/ Gas/ Combined Cycle Power Generation Plant

40

2.38%

7.22%

-

-

-

-

2. Hydro Power Generation Plant 3. Nuclear Power Generation Plant 4. Transmission lines, cables and other network assets

40 40 40

2.38% 2.38% 2.38%

7.22% 7.22% 7.22%

-

-

-

-

5. Wind Power Generation Plant 6. Electric Distribution Plant 7. Gas Storage and Distribution Plant 8. Water Distribution Plant including pipelines (g) Plant and Machinery used in manufacture of steel 1. Sinter Plant 2. Blast Furnace 3. Coke ovens 4. Rolling mill in steel plant 5. Basic oxygen Furnace Converter (h) Plant and Machinery used in manufacture of nonferrous metals

22 35 30 30

4.32% 2.71% 3.17% 3.17%

12.73% 8.20% 9.50% 9.50%

-

-

-

-

20 20 20 20 25

4.75% 4.75% 4.75% 4.75% 3.80%

13.91% 13.91% 13.91% 13.91% 11.29%

7.13% 7.13% 7.13% 7.13% 5.70%

20.87% 20.87% 20.87% 20.87% 16.94%

9.50% 9.50% 9.50% 9.50% 7.60%

27.82% 27.82% 27.82% 27.82% 22.59%

1. Metal pot line [NESD] 2. Bauxite crushing and grinding section [NESD] 3. Digester Section [NESD] 4. Turbine [NESD] 5. Equipments for Calcination [NESD] 6. Copper Smelter [NESD] 7. Roll Grinder 8. Soaking Pit 9. Annealing Furnace 10. Rolling Mills 11. Equipments for Scalping, Slitting , etc. [NESD]

40 40 40 40 40 40 40 30 30 30 30

2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 3.17% 3.17% 3.17% 3.17%

7.22% 7.22% 7.22% 7.22% 7.22% 7.22% 7.22% 9.50% 9.50% 9.50% 9.50%

3.57% 4.76% 4.76% 4.76% -

10.82% 14.26% 14.26% 14.26% -

4.76% 6.34% 6.34% 6.34% -

14.43% 19.01% 19.01% 19.01% -

12. Surface Miner, Ripper Dozer, etc., used in mines

25

3.80%

11.29%

5.70%

16.94%

7.60%

22.59%

13. Copper refining plant [NESD]

25

3.80%

11.29%

-

-

-

-

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SCHEDULE - II - PART C USEFUL LIFE OF VARIOUS ASSETS & DEPRECIATION RATES General Rates Nature of Assets

Double Shift

Triple Shift

Useful Life SLM Rate WDV Rate SLM Rate WDV Rate SLM Rate WDV Rate In Years

(i) Plant and Machinery used in medical and surgical operations [NESD] 1. Electrical Machinery, X-ray and electrotherapeutic apparatus and accessories thereto, medical, diagnostic equipments,

13

7.31%

20.58%

-

-

-

-

2. Other Equipments. (j) Plant and Machinery used in manufacture of pharmaceuticals and chemicals [NESD]

15

6.33%

18.10%

-

-

-

-

1. Reactors 2. Distillation Columns 3. Drying equipments/Centrifuges and Decanters 4. Vessel/storage tanks (k) Plant and Machinery used in civil construction 1. Concreting, Crushing, Piling Equipments and Road Making Equipments

20 20 20 20

4.75% 4.75% 4.75% 4.75%

13.91% 13.91% 13.91% 13.91%

-

-

-

-

12

7.92%

22.09%

11.88%

33.14%

15.84%

44.18%

20 15 10

4.75% 6.33% 9.50%

13.91% 18.10% 25.89%

7.13% 9.50% -

20.87% 27.16% -

9.50% 12.66% -

27.82% 36.21% -

4. Earth-moving equipments 5. Others including Material Handling /Pipeline/Welding Equipments [NESD]

9 12

10.56% 7.92%

28.31% 22.09%

15.84% -

42.47% -

21.12% -

56.63% -

(l) Plant and Machinery used in salt works [NESD]

15

6.33%

18.10%

-

-

-

-

10 8

9.50% 11.88%

25.89% 31.23%

-

-

-

-

10 6

9.50% 15.83%

25.89% 39.30%

-

-

-

-

3. Motor buses, motor lorries and motor cars other than those used in a business of running them on hire

8

11.88%

31.23%

-

-

-

-

4. Motor tractors, harvesting combines and heavy vehicles

8

11.88%

31.23%

-

-

-

-

5. Electrically operated vehicles including battery powered or fuel cell powered vehicles

8

11.88%

31.23%

-

-

-

-

2. Heavy Lift Equipments— Cranes with capacity of more than 100 tons Cranes with capacity of less than 100 tons 3. Transmission line, Tunneling Equipments [NESD]

V FURNITURE AND FITTINGS [NESD] (i) General furniture and fittings (ii) Furniture and fittings used in hotels, restaurants and boarding houses,schools, colleges and other educational institutions, libraries; welfarecentres; meeting halls, cinema houses; theatres and circuses; and furniture and fittings let out on hire for use on the occasion of marriages and similar functions.

VI MOTOR VEHICLES [NESD] 1. Motor cycles, scooters and other mopeds 2. Motor buses, motor lorries, motor cars and motor taxies used in a business of running them on hire

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SCHEDULE - II - PART C USEFUL LIFE OF VARIOUS ASSETS & DEPRECIATION RATES General Rates Nature of Assets VII SHIPS [NESD] 1. Ocean-going ships (i) Bulk Carriers and liner vessels (ii) Crude tankers, product carriers and easy chemical carriers with or without conventional tank coatings.

Double Shift

Triple Shift

Useful Life SLM Rate WDV Rate SLM Rate WDV Rate SLM Rate WDV Rate In Years

25 20

3.80% 4.75%

11.29% 13.91%

-

-

-

-

25 20 30 30

3.80% 4.75% 3.17% 3.17%

11.29% 13.91% 9.50% 9.50%

-

-

-

-

(vi) Coastal service ships of all categories (vii) Offshore supply and support vessels (viii) Catamarans and other high speed passenger for ships or boats

30 20 20

3.17% 4.75% 4.75%

9.50% 13.91% 13.91%

-

-

-

-

(ix) Drill ships (x) Hovercrafts (xi) Fishing vessels with wooden hull (xii) Dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging purposes

25 15 10 14

3.80% 6.33% 9.50% 6.79%

11.29% 18.10% 25.89% 19.26%

-

-

-

-

13 28

7.31% 3.39%

20.58% 10.15%

-

-

-

-

VIII AIRCRAFTS OR HELICOPTERS [NESD]

20

4.75%

13.91%

-

-

-

-

IX RAILWAYS SIDINGS, LOCOMOTIVES, ROLLING STOCKS, TRAMWAYS AND RAILWAYS USED BY CONCERNS, EXCLUDING RAILWAY CONCERNS [NESD]

15

6.33%

18.10%

-

-

-

-

X

15

6.33%

18.10%

-

-

-

-

5

19.00%

45.07%

-

-

-

-

6 3

15.83% 31.67%

39.30% 63.16%

-

-

-

-

10 5

9.50% 19.00%

25.89% 45.07%

-

-

-

-

XIV ELECTRICAL INSTALLATIONS AND EQUIPMENT [NESD]

10

9.50%

25.89%

-

-

-

-

XV HYDRAULIC WORKS, PIPELINES AND SLUICES [NESD]

15

6.33%

18.10%

-

-

-

-

(iii) Chemicals and Acid Carriers: (a) With Stainless steel tanks (b) With other tanks (iv) Liquified gas carriers (v) Conventional large passenger vessels which are used for cruise purpose also

2. Vessels ordinarily operating on inland waters— (i) Speed boats (ii) Other vessels

ROPEWAY STRUCTURES [NESD]

XI OFFICE EQUIPMENT [NESD] XII COMPUTERS AND DATA PROCESSING UNITS [NESD] (i) Servers and networks (ii) End user devices, such as, desktops, laptops, etc.

XIII LABORATORY EQUIPMENT [NESD] (i) General laboratory equipment (ii) Laboratory equipments used in educational institutions

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Notes On Depreciation As Per Companies Act 2013 1. "Buildings" include roads, bridges, culverts, wells and tubewells. 2. "Factory buildings" does not include offices, godowns, officers’ and employees’ quarters, roads, bridges, culverts, wells and tubewells. 3. "Speed boat" means a motor boat driven by a high speed internal combustion engine capable of propelling the boat at a speed exceeding 24 kilometres per hour in still water and so designed that when running at a speed it will plane, i.e., its bow will rise from the water. 4. Where, during any financial year, any addition has been made to any asset, or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition or, as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed. 5. The following information should also be disclosed in the accounts : -

Depreciation methods used; and

-

Depreciation rates or the useful lives of the assets, if they are different from the principal rates specified in the Schedule.

6. The calculations of the extra depreciation for double shift working and for triple shift working shall be made separately in the proportion which the number of days for which the concern worked double shift or triple shift, as the case may be, bears to the normal number of working days during the year. For this purpose, the normal number of working days during the year shall be deemed to be :

7.

-

In the case of a seasonal factory or concern, the number of days on which the factory or concern actually worked during the year or 180 days, whichever is greater;

-

In any other case, the number of days on which the factory or concern actually worked during the year or 240 days, whichever is greater.

The extra shift depreciation shall not be charged in respect of any item of machinery or plant which has been specifically, excepted by inscription of the letters "NESD" (meaning "No Extra Shift Depreciation") against it in sub-items above and also in respect of the following items of machinery and plant to which the general rate of depreciation of 13.91% applies 1. Accounting machines. 2. Air-conditioning machinery including room air-conditioners. 3. Building contractor’s machinery. 4. Calculating machines. 5. Electrical machinery — switchgear and instruments, transformers and other stationary plant and wiring and fitting of electric light and fan installations. 6. Hydraulic works, pipelines and sluices. 7. Locomotives, rolling stocks, tramways and railways used by concerns, excluding railway concerns. 8. Mineral oil concerns field operations - Prime Movers - Storage tanks (above ground) - Pipelines (above ground) - Jetties and dry docks

8. Mineral oil concerns — field operations (distribution) — kerbside pumps, including underground tanks and fittings.

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9. Mineral oil concerns refineries: i.

Prime movers

ii.

LPG plant

10. Mines and quarries i.

Surface and underground machinery (other than electrical machinery and portable underground machinery).

ii.

Head-gears iii. Rails iv. Shafts and inclines v.Tramways on the surface

11. Neo-post franking machines 12. Office machinery 13. Overhead cables and wires 14. Railway sidings 15. Refrigeration plant containers, etc. (other than racks) 16. Ropeways structures i.Trestle and station steel work

ii. Driving and tension gearing

17. Salt works — Reservoirs, condensers, salt pans, delivery channels and piers if constructed of masonry, concrete, cement, asphalt or similar materials; barges and floating plant; piers, quays and jetties; and pipelines for conveying brine if constructed of masonry, concrete, cement, asphalt or similar materials. 18. Surgical instruments 19. Tramways, electric and tramways run by internal combustion engines — permanent way cars — car trucks, car bodies, electrical equipment and motors; tram cars including engines and gears. 20. Typewriters 21. Weighing machines 22. Wireless apparatus and gear, wireless appliances and accessories. 23. Notwithstanding anything mentioned in this Schedule, depreciation on assets, whose actual cost does not exceed Rs. 5,000 shall be provided depreciation @ 100%. Provided that where the aggregate actual cost of individual items of plant and machinery costing Rs. 5,000 or less constitutes more than 10% of the total actual cost of plant and machinery, rates of depreciation applicable to such item shall be the rates as specified in Item 11 of the Schedule. The Research Committee of the Institute of Chartered Accountants of India has issued a Guidance Note on Significant issues arising from the amendments made by Notification dated 16-12-1993 issued by the Department of Company Affairs. The Guidance Note inter alia covers the following issues in supplement to the earlier Guidance Note and supersedes the same. 24. day.

"Continuous Process Plant" means a plant which is required and designed to operate 24 hours a

In case of the plant which is designed to operate for 24 hours a day but is required to shut down for some reasons like lack of demand or maintenance etc., the relevant rate for Continuous Process Plant would be applicable. However, in case of Plant which may work for 24 hours in a day but which is not technically designed to work as such, extra shift rates prescribed in the schedule would be applicable. A Continuous Process Plant is distinguished from repetitive process plant or assembly-line type plants. Such plants do not involve significant shut down and/or start up costs. Hence they are not technically required and designed to operate 24 hours a day. An ancillary equipment/plant which is an integral part of the Continuous Process Plant should be depreciated along with the main Continuous Process Plant.

It is not necessary for the whole concern to be defined as a Continuous Process Plant. Depreciation on low value items : In respect of the assets acquired prior to December 16, 1993, the amount of write off depends on the alternative chosen to depreciate the asset. Depreciation be provided on pro rata basis from the date of additions even in case of low value items. However, a company can write off fully, low value items on the Consideration of Materiality after disclosing appropriately such accounting policies in the accounts.

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