AB pvt ltd has 59 lacs depreciation as per SLM method ( as per companies act ) and 45 lacs dep as per income tax , due to which it's total income as per income is 14 lacs .
Can we change method of depreciation from SLM to WDV ?
If yes , then what about deferred tax asset which is already recorded in books of company ?
| Yes, a company can change its depreciation method, but it is treated as a change in accounting policy and requires specific treatment: 1. Permissibility: Under Schedule II to the Companies Act, 2013, a company may use SLM or WDV method. The method can be changed, but only if required by law, or if the change results in a more appropriate presentation of events/transactions in financial statements. 2. Accounting Standard Treatment: - Under AS 6 (applicable to non-Ind AS companies): Change in depreciation method is treated as a change in accounting policy. The effect is computed retrospectively — recalculate depreciation from the date of asset acquisition under the new method and adjust the difference in the current year's P&L. - Under Ind AS 16 (applicable to Ind AS companies): Change in depreciation method is treated as a change in accounting estimate (NOT accounting policy) — applied prospectively (no retrospective restatement). The change is applied from the current year onwards. 3. Disclosure Requirements: - Disclose the change in accounting policy/estimate in the Notes to Accounts - State the reason for the change - Quantify the impact on current year's profit/depreciation - Auditor's report must also comment on the change 4. Board Resolution: Pass a Board resolution approving the change in depreciation method before implementation. 5. Tax Implication: Change in book depreciation method does NOT affect tax depreciation — Income Tax Act allows only WDV method for most assets (SLM is allowed for power generation companies). Tax depreciation continues as per IT Act rates regardless of book method. |
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