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Schedule II – Complete Details and Notes with Examples
On 29th of August, Ministry of Corporate Affairs had published a notification in the official Gazette to amend Schedule II of the said act with effect from the date of this notification (G.S.R. 627 (E) ). The details of the same and it’s implication has been mentioned hereunder
With the introduction of Companies Act, 2013 method for calculating depreciation has changed.Schedule XIV has been replaced with Schedule II.As per Schedule II , useful lives will be mentioned for all the assent in Part C of the act.For a class of companies, specifically prescribed by MCA, can adopt useful life longer than prescribed in schedule II, but the same should be disclosed in Notes To Accounts with justification. For other companies, life cannot be longer than that prescribed in Schedule II.As per this schedule, the residual value of should not exceed 5% of the original cost of the asset.In case of Double shift – Additional Depreciation 50% ( If depreciation is 2000 for single shift it will be 4000 for double shift ) and triple shift – Additional depreciation 100%Previously the asset whose cost was Rs.5000/- or less was made 100% depreciation , but now it shall be depreciated as per the provisions specified in Schedule II ( i.e as per is useful life )
What happened before :
Say my Asset is Rs. 20000 , depreciation rate is 10% . Now if Asset is revalued to Rs.30000/- we do the following : The total amount of depreciation = 30000 * 10 % i.e 3000 To Revaluation Reserve 10000
What will happen now
Depreciation will be 10 % P/L Dr. 2000 To Asset 3000 Balance in Revaluation Reserve = 10000 To Asset 3000 To Dep 3000
Useful lives are specified in Part C , if useful life / Residual value not in accordance with Part C then necessary disclosures of such difference with justification by technical advice is required.
Translation Provision
Remaining Useful life as on 1/4/2014 as per Co’s Act
Let’s take up some examples
Formula for depreciation – S.L.M = (Cost – Scrap) / useful life Formula for depreciation – W.D.V = 1 – (s/c)1/n ( ‘s’ stands for scrap, ‘c’ stands for original cost and its (1 – s/c)1/n , n stands for useful life ) [divider style=”solid” top=”20″ bottom=”20″]
Eg. (1) – Original Cost of Plant and Machinery – 100000
useful life as per old provision – 20 yrs useful life as per new provision – 15yrs depreciation as per old prov (wdv) – 13.91% depreciation rate as per new prov – 18.10 % Expired Life – 5 yrs Accumulated Dep for expired life – 52711 (Q) What shall be the carrying amount? (A) 100000 – 52711 = 47289 (Q) What shall be the remaining useful life of the P.M? (A) 10 yrs (life as per new prov – expired life) (Q) What should be the rate of Dep ? (A) 1 – ( Scrap value/Original cost)1/useful life i.e 1- (5000/100000)1/10 = 25.89% [divider style=”solid” top=”20″ bottom=”20″]
Eg (2) Original cost of P.M – 100000
useful life (old prov) – 20 yrs dep old prov. – 13.91 % useful life (new prov ) – 15 yrs dep new prov. – 18.10 % expired life – 16 yrs accumulated dep – 90896 carrying amount – 9104 Since there is no useful life as per schedule II i.e. the remaining useful life is NIL. the carrying amount (i.e. 9104) as reduced by the Scrap Value (i.e. 5% of 100000 ) should be charged to opening retained earnings Entry as on 1/4/2014 Opening retained Earnings A/c Dr. 4104 To Asset A/c 4104 [divider style=”solid” top=”20″ bottom=”20″]
Eg (3)
This requirement of calculating dep as per Sch II was voluntary wrt F.Y. commencing from 1/4/2014 but mandatory for F.Y 1/4/2015 onwards. Source – Article is Written by Mr Anirudh Sonpal
