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Mandatory to charge depreciation under companies act

20 August 2011

I wish to know whether it is compulsary to charge depreciation under Companies Act even if asset is no longer in the use for business. Suppse building in this case.

Give support for your answer.

Regards

Ritesh

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6 Replies

Yogesh (Manager) (50 Points)
Replied 23 August 2011

Dear, It is mandatory under the AS 6 to charge depreciation on fixed assets. Accounting standards are notified under the Companies Accounting Rules 2006 section 211 (3C) and therefore it is mandatory under the companies act. As per AS 6, depreciation is due to efflux of time as well and therefore even if assset is not in use, depreciation is mandatory. Incase assets are held for sale and then assets are accounted lower of cost or NRV, whicever is lower.

Hope it clarifies.

Rajagopalakrishnan R (PARTNER) (1417 Points)
Replied 23 August 2011

Dear Ritesh

I do not think it is mandatory to charge depreciation under Companies act unless:

1. U want to pay dividends or

2. u want to pay managerial remuneration u/s 349/350

However, the non charging of depreciation will attract a qualification in the audit report on account of

A. Non compliance with Applicable Accounting Standards and possibly

B. non maintanence of Proper books of accounts.

If you are ok with above, you can refrain from charigng depreciation this year or even the next. But remember that the year in which u want to declare dividend or pay managerial remuneration u have to charge depreciation including all arrears of previosu years in that year.

1 Like

Yogesh (Manager) (50 Points)
Replied 24 August 2011

It is mandatory after as are notified under companies act 1956

HelpCA (Yet to be!) (21 Points)
Replied 17 September 2011

The views expressed by Rajagopalakrishnan are agreed upon.

Megha (CA) (29 Points)
Replied 19 September 2011

Related to same topic i want to know, wether it is still mandatory to charge dapreciation as per companies act,1956 if Company has nil business income during year? Further, Can it start charging depreciation from the year of business income? Regards, Megha Rautela

Narendra Kumar Tripathi (partner) (23 Points)
Replied 29 September 2021

Charging of depreciation is mandatory when the company runs in normal course of business but when the company is not fulfilling the criteria of going concern then this will attract a qualification in the Auditor`s report regarding non compliance of AS 10 or other relevant Ind AS as well as SAs.If the original life of assets are revised as per technical evaluation then carrying amount should be derecognised.