26 October 2014
SIR, A PRIVATE LIMITED COMPANY INCORPORATED ON 01/04/2001 HAS ADOPTED W.D.V. METHOD OF DEPRECIATION. THE W.D.V OF PLANT AND MACHINERY AS ON 31.03.2014 IS RS. 25.00 LACS THE COMPANY HAS PURCHASED PLANT AND MACHINERY IN DIFFERENT YRAR FROM 01/04/2001 TO 31.03.2014 SIR HOW THE USEFUL LIFE OF THE ASSET WILL BE DETERMINED AND HOW THE DEPRECIATION WILL BE CHARGED FOR THE F.Y.2014-15 UNDER SCHEDULE-II OF THE COMPANIES ACT 2013 WITH REGARDS PANKAJ KUMAR SRIVASTAVA
21 July 2024
In the scenario provided, the Private Limited Company has been using the Written Down Value (WDV) method of depreciation and now needs to comply with Schedule II of the Companies Act, 2013, which mandates the use of the Straight Line Method (SLM) for calculating depreciation.
Here’s how you can determine the useful life of the assets and calculate depreciation for the financial year 2014-15:
### 1. Determining Useful Life of Assets:
Under Schedule II of the Companies Act, 2013, the useful life of assets is determined based on the following:
- **Schedule provided:** There is a specific schedule provided in the Act (Part C of Schedule II) that prescribes the useful lives of various assets. This schedule categorizes assets into different classes and specifies the number of years over which depreciation should be charged.
- **Technical assessment:** If the specific asset is not covered in the schedule, the company may conduct a technical assessment to estimate the useful life based on factors such as technological changes, maintenance schedules, and economic factors.
### 2. Calculation of Depreciation for FY 2014-15:
Since the company has been using the WDV method until now, the transition to the SLM method under Schedule II will affect how depreciation is calculated:
- **Opening WDV as on 01.04.2014:** Rs. 25.00 Lacs (this is the WDV as on the beginning of the financial year 2014-15)
- **Useful Life Determination:** Determine the useful life of each asset as per the schedule or technical assessment.
- **Depreciation Calculation:** Use the Straight Line Method (SLM) for assets whose useful lives are defined in Schedule II. The formula for SLM is: \[ \text{Annual Depreciation} = \frac{\text{Cost of Asset} - \text{Residual Value}}{\text{Useful Life}} \] - Where: - Cost of Asset: This is the historical cost of the asset. - Residual Value: Estimated value of the asset at the end of its useful life. - Useful Life: As determined based on Schedule II.
- **Depreciation Charge for FY 2014-15:** Calculate depreciation individually for each asset based on its cost, residual value, and useful life determined. Sum up the depreciation charges to get the total depreciation expense for the financial year.
### Compliance with Schedule II:
It’s crucial to comply with Schedule II for accurate financial reporting and compliance with regulatory requirements. The transition from WDV to SLM may require adjustments in accounting practices and documentation to reflect the change appropriately.
Ensure to review Schedule II thoroughly and consult with a qualified accountant or auditor to determine the specific useful lives applicable to your assets and to correctly implement the depreciation calculation for the financial year 2014-15.
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