Depreciation as per companies act

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Pavanendra (Querist)
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08 August 2014 Dear Sir,

What is the maximum limit of Depreciate of Asset can be allowed as per the companies Act.

For Example: If the Asset value is Rs. 1000/-
asset purchased in the year 2004,Asset life is 10 Years, every year 10% of depreciation is allowing. In the year 2014 the Asset value is becoming Zero. The asset is still useful condition.

My Question is what is asset value to be kept in the fixed asset register. If possible can you provide any case laws.

Pavanendra

Pavanendra (Querist)
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11 August 2014 Any one Can solve my problem.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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21 July 2024 Under the Companies Act, 2013, there is no maximum limit on the depreciation that can be claimed for an asset. However, the depreciation claimed must be in accordance with the useful life of the asset and the rates prescribed under Schedule II of the Companies Act, 2013.

### Calculation Example:
Let's break down the example you provided:

- **Asset Value:** Rs. 1000
- **Purchase Year:** 2004
- **Useful Life:** 10 years
- **Depreciation Rate:** 10% per annum on Written Down Value (WDV)

Given these details:
- **Depreciation for each year:** 10% of WDV
- **WDV Calculation:** Start with Rs. 1000 in 2004 and apply 10% depreciation annually until the end of the asset's useful life.

### Asset Value in Fixed Asset Register:
According to accounting principles and the Companies Act, the asset's value in the fixed asset register should reflect its original cost of acquisition. Even if the accumulated depreciation eventually equals the original cost (making the WDV zero), the asset's physical presence and utility should still be recorded in the fixed asset register.

### Treatment in the Books:
- **Fixed Asset Register:** The asset should continue to be listed in the fixed asset register with its original cost of acquisition (Rs. 1000 in this case) until it is disposed of or no longer in use.
- **Depreciation Accounting:** Depreciation should be charged each year based on the applicable rate (10% in this case) until the WDV reaches zero.

### Case Laws:
There are no specific case laws provided here, as this is a straightforward application of depreciation principles under the Companies Act, 2013. However, principles from accounting standards and interpretations would support the continued recording of the asset until disposal, despite the WDV reaching zero.

### Summary:
In conclusion, while the WDV of the asset may become zero after 10 years of depreciation at 10% per annum, the asset's original cost should still be maintained in the fixed asset register until the asset is disposed of. This approach ensures accurate financial reporting and compliance with accounting standards.

For specific legal interpretations or case laws, especially if the asset's continued usefulness is a concern, consulting with a professional accountant or legal advisor would be recommended. They can provide guidance tailored to the specific circumstances and legal precedents relevant to your jurisdiction.

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