Depreciation as per companies Act for financial year 2020-21

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ila (Querist)
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05 June 2021 pl.guide me for the rate of depreciation to be levied as per companies Act in India
on plant & machinery which was used to work 3 shift but in financial year 2020-21its working in single shift. can company charge depreciation at lower rate for the particular year.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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06 July 2024 Under the Companies Act, 2013, the depreciation rates for Plant & Machinery are prescribed under Schedule II. Here’s how depreciation would typically apply in the scenario you described:

1. **Depreciation Rate**: The standard depreciation rate for Plant & Machinery under Schedule II of the Companies Act is 15% per annum on a straight-line basis. This rate is applicable unless there are specific provisions for different rates based on the nature of the asset.

2. **Change in Utilization**: If there is a change in the utilization of Plant & Machinery (e.g., from working three shifts to working one shift), the depreciation rate prescribed under Schedule II generally remains applicable. The Act does not explicitly provide for a lower depreciation rate based solely on reduced utilization.

3. **Impact on Depreciation Charge**: While the rate remains the same, the depreciation charge for the financial year may be affected by the reduced utilization. Depreciation is typically calculated based on the cost of the asset and its useful life, divided evenly over that life. Therefore, if the asset is used less during a particular year, the depreciation charge for that year would reflect the reduced utilization.

4. **Accounting Treatment**: Companies should ensure that depreciation is calculated consistently with the accounting policies adopted by the company. Any change in utilization should be duly noted in the financial statements, but it does not alter the depreciation rate prescribed under Schedule II.

In summary, for Plant & Machinery, the depreciation rate remains unchanged even if there is a change in utilization (such as moving from three shifts to one shift). The depreciation charge for the year would reflect the reduced usage, but the rate itself is governed by the Companies Act and Schedule II. Always consult with a qualified accountant or financial advisor to ensure compliance with accounting standards and regulations specific to your circumstances.

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