Can depreciation fund exceed cost of asset

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Fenil Gupta

Student

34 Points Posted on 08 April 2014

Our client is maintaining SLM basis..

Depreciation fund amt is 6582934.55

Asset cost is 6969800.53

so according to dep rate:6.33%(as per companies act)

current year depreciation is 441188.37

So depreciation fund amt would exceed the cost i.e 7024122.92

is this correct...??? or should apply depreciation upto the amt of cost of asset i.e upto 6969800.53...?

please guide me the right teratment of such...

Replies (2)

ADITYA

Chartered Accountant

128 Points Posted on 08 April 2014

The purpose of depreciation is to write off an asset in due course of its life. Also to prepare funds for future asset which would be used to replace the existing asset.

In my view the value in depreciation fund should be upto a maximum of value of asset as it is the total WDV at beginning that an enterprise is writing off.

Milind M. Kulkarni

Practicing CA

446 Points Posted on 14 April 2014

Total depreciation cannot exceed total cost of the asset. In subsequent year after charging depreciation under SLM, if depreciation under schedule XIV of Companies Act is more that opening WDV, depreciation should be restricted to opening WDV and closing WDV will be Nil.

Please also refer schedule II of the Companies Act 2013 which introduces concept of useful lives of various types of fixed assets. Also refer provision in schedule II regarding charging opening WDV to retained earnings due to change of method of depreciation from as per Companies Act 1956 to as per Companies Act 2013.