05 September 2013
A Pvt Ltd. company is following the policy of writing off its fixed assets in three years from the date of its Purchase. Hence charging depreciation @ 33.33% p.a. on SLM basis. The first FY for the company was from April 2009 to March 2010. Second FY from April 2010 to March 2011 and Third FY from April 2011 to March 2012. Now the company intends to change its FY as April to December. And for this purpose the company is preparing Financial Statements for the period April 2012 to Dec 2012. Now, lets assume if the company had purchased a Fixed Asset in June 2009, its three years are completing in June 2012. My Query: Whether this particular asset should be written off from the books of Accounts as per policy of the company or the Depreciation should be charged only for the 9 months period from April 2012 to Dec 2012.
21 July 2024
In the scenario you've described, where the company changes its financial year from April to March to April to December, and considering the depreciation policy of writing off fixed assets over three years on a straight-line basis (SLM), here’s how you should approach the depreciation for the asset purchased in June 2009:
1. **Depreciation Calculation:** - The company's policy is to write off fixed assets over three years, which implies an annual depreciation rate of 33.33% on a straight-line basis (SLM). - For an asset purchased in June 2009, it would have completed its three-year useful life by June 2012.
2. **Change in Financial Year:** - The financial year is changing from April-March to April-December. This means for the financial year April 2012 to December 2012, you have a 9-month period instead of the usual 12-month period.
3. **Treatment of Depreciation:** - Since the asset’s useful life under the company’s policy ends in June 2012 (three years from June 2009), the asset should ideally be fully depreciated (written off) by the end of June 2012. - From April 2012 to December 2012, you should only charge depreciation for the remaining 9 months of the asset’s useful life, which means calculating the depreciation for those 9 months based on the annual depreciation rate.
4. **Example Calculation:** - If the asset cost Rs. 100,000 and the annual depreciation rate is 33.33% under SLM, the annual depreciation would be Rs. 33,333. - For the 9 months from April 2012 to December 2012, the depreciation would be: \[ \text{Depreciation for 9 months} = \left( \frac{33.33\%}{12} \times \text{Cost of Asset} \right) \times 9 \] \[ \text{Depreciation for 9 months} = \left( \frac{33.33}{12} \times 100,000 \right) \times 9 = Rs. 24,997.50 \]
5. **Conclusion:** - As per the company's policy, the asset should have been fully depreciated (written off) by June 2012. - Therefore, for the period April 2012 to December 2012, you would only charge depreciation for the remaining 9 months of the asset's useful life, based on the annual depreciation rate of 33.33% on a straight-line basis.
By following this approach, you align with the company's depreciation policy while also adjusting for the change in financial year from April-March to April-December. This ensures that the depreciation expense reflects the portion of the asset's useful life that falls within the financial year April 2012 to December 2012.
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