Residual value under schedule ii
This query is : Resolved
30 May 2015
Hello Sir/Mam
What would be the formula for rate of depreciation if the residual value is NIL?
What would be the formula for rate of depreciation if the residual value is NIL?
30 May 2015
It is 100/life of the asset.
30 May 2015
O.K, but justification for NIL( being < 5%) residual value shall have to be disclosed in the financial statements.
30 May 2015
But sir doesn't guidance note issued by icai say that only if residual value exceeds 5%,disclosure is to be made?correct me if i am wrong...
30 May 2015
Also one more doubt by 100/life of asset u mean remaining life of asset isn't it so sir?
30 May 2015
It is carrying cost/remaining life.
02 June 2015
Para 9 of the "Application Guide on the provisions of Schedule II of the Companies Act,2013" says If > 5% disclosure is required.
But elsewhere in the said guide, ICAI says "Provided that where a company adopts a useful life different from what is specified in Part C or uses a residual value different from the limit specified above, the financial statements shall disclose such difference and provide justification in this behalf duly supported by technical advice.”
You can also see a synonymous reference in proviso to clause 3(1) of part A of schedule II of the Companies Act,2013.
So I go with my observation dt 30-5-2015.
But elsewhere in the said guide, ICAI says "Provided that where a company adopts a useful life different from what is specified in Part C or uses a residual value different from the limit specified above, the financial statements shall disclose such difference and provide justification in this behalf duly supported by technical advice.”
You can also see a synonymous reference in proviso to clause 3(1) of part A of schedule II of the Companies Act,2013.
So I go with my observation dt 30-5-2015.
02 June 2015
But Sir it says "disclosure is required only when residual value is different from the limits specified above".
I understand that the limit specified is not more than 5%,hence only when it exceeds the said limit disclosure is needed...
Pls correct me if I am wrong Sir,since I am still not clear with the terminology used.
I understand that the limit specified is not more than 5%,hence only when it exceeds the said limit disclosure is needed...
Pls correct me if I am wrong Sir,since I am still not clear with the terminology used.
02 June 2015
In view of limit specified as not more than 5% the views of Sanjana is right.
02 June 2015
Sir,Then how do we present the same in Balance Sheet? Since assets which have useful life is NIL, let s say I have decided to charge it off against P&L (as Guidnace note gives us an option to either transfer it to retained earnings or charge it off against P&L)...Then how should the same be reflected in Fixed Assets Schedule Sir
03 June 2015
It will be reflected in the fixed asset schedule till it is disposed. 100% in gross cost and 100% in depreciation.
03 June 2015
See the depreciation schedule of a company you will understand.
Gross cost 100
Less depreciation 100
Net fixed assets 0
Gross cost 100
Less depreciation 100
Net fixed assets 0
03 June 2015
But sir wont this exercise lead us ti providing excess depreciation?
because assume wdv of an asset whose useful life is nil is rs.5120 (whose gross block value is say 10000)accumulaed depreciation till 2014 is say 4880 and residual value is say 500...my conntention is that shouldn't (10000-500) shd be reduced from gross block and from depreciation only 4880
because assume wdv of an asset whose useful life is nil is rs.5120 (whose gross block value is say 10000)accumulaed depreciation till 2014 is say 4880 and residual value is say 500...my conntention is that shouldn't (10000-500) shd be reduced from gross block and from depreciation only 4880
04 June 2015
No reduction in gross block will be made until the asset is disposed off.
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