Ind as 16 effect on wdv

Yes, adopting Ind AS 16 can affect the WDV depending on how the company chooses to measure on transition. Here is the analysis:

1. Under Previous GAAP (AS 10): Depreciation was typically charged at Schedule II rates or useful life under Companies Act. For a 60-year life asset, depreciation would be 1/60th per year on Straight Line Method (SLM) or WDV method as per company policy.

2. Under Ind AS 16 – Component Accounting: Ind AS 16 requires 'component accounting' — significant components of a large asset must be depreciated separately based on their individual useful lives. This is a key change. For example, a building: structure (60 years), fittings (15 years), elevators (20 years) etc. must be broken down and depreciated individually.

3. Transition Adjustment (Ind AS 101): On first-time adoption, a company can choose one of:
- Fair Value as Deemed Cost: Revalue the asset to fair value on transition date and use that as the new cost base (this will change WDV significantly).
- Carry Forward at Previous GAAP WDV: Continue with the old WDV as the deemed cost — no change to WDV at transition, but component accounting applies going forward.

4. For your example (Rs. 20L asset, purchased 2011, 60-year life): Under SLM, annual depreciation = Rs. 33,333/year. WDV as of transition date = Rs. 20L minus accumulated depreciation. If deemed cost option is used, WDV remains same. If fair value option is used, WDV is reset to current fair value. Post-transition, component accounting must be applied under Ind AS 16.

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Puneet Garg

Aashok Kumar Sharma

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