14 July 2015
Note 7 of Schedule II of Companies Act 2013 specified that: “From the date this Schedule comes into effect, the carrying amount of the asset as on that date, shall be depreciated over the remaining useful life of the asset as per this schedule”. A plain reading of this will imply that the Depreciation working for F.Y.2014-15 will be as follows: Rs.
(1) Cost of Asset (Original) 100000 (2) Method adopted upto 31/03/2014 WDV (3)Rate adopted upto 31/03/2014 10% (4) W.D.V on 01/04/2014 65610 (5) UsefulLife As per new Schedule II 8 Years (6) Remaining useful Life 4 Years (Since Rs. 34390/- has been w/off over past 4 years) (7) Depreciation for 2014-15,2015-16 65610/4 2016-17 & 2017-18 16403
(Residual Value assumed: NIL) However, if AS-6 is to be followed, we will have to work out Depreciation by 3 Methods for 2014-15:
Rs (A) As per above 16403 (B) By giving Retrospective effect to useful life of 8 years (Rs.12500/- for 2014-15 &Rs. 15610/- for earlier 4 years.) 28110 (C) By continuing the WDV method followed upto 31/03/2014 just for disclosing change in method & effect thereof. 6561
In my view, workings out A & C are proper & difference of Rs. 9842/- to be disclosed by way of a Note saying “profit is stated at a lower figure by Rs. 9842/- due to change in Method of Depreciation.” It may view correct? If not what is the correct Method of (a) Charge to P & L A/c in 2014-15. (b) Note to Accounts?
(1) An expert practicing in Pune has stated that you do not have to change Method of Depreciation from existing WDV (upto 31/03/2014) to SLM. But you have to work out a new Rate of Depreciation for continuing WDV Method which will enable you to write off the WDV of 01/04/2014 over remaining useful life. In the illustration given earlier, the new rate will be nearly 53%. Does not this sound illogical?
(2) One more view is that the WDV of 01/04/2014 will be reworked following SLM Method from the beginning. So, if the book WDV is more than Re-worked WDV, difference will be debited to P & L A/c. Please opine which Method should be adopted.
14 July 2015
Act can NOT be viewed as UNRULY horse. Whenever any change is envisaged, it is bound to create some anmolies. "Substance over form" should be the principle to be used. They are trying to make us IFRS compliant through Schedule II, is for sure. Another important point to be borne by respcted CAs is that "determination of useful life" be the domain of management and/or engineers and or schedule II. CAs job would be to REPORT... So.....get the remaining useful life from management and/or engineers. Calculate depreciation as carrying amount 65610 - 5000 i.e. residual amount (assumed)...divide this by remaining useful life.....
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