01 January 2015
In case the useful life of asset is nil as per companies act the same should be charged to the profit & loss statement. Otherwise a qualification from statutory auditors may be there as regarding the rate of depreciation.
21 July 2024
Under the Companies Act, 2013, if an asset has a useful life of NIL (meaning it is deemed to have no residual value), depreciation should still be accounted for based on the original cost and the applicable depreciation rate until the Written Down Value (WDV) reaches its residual value, which is usually nil. Here's how you would account for depreciation in the scenarios provided:
### Scenario 1:
1. **Purchase Price of Asset:** Rs. 100,000 2. **WDV as on 31-03-2014:** Rs. 11,000
Since the useful life is NIL, the depreciation will be calculated based on the WDV.
- **Calculation of Depreciation:** - Assuming a depreciation rate of 10% per annum on WDV (as an example):
Depreciation for the year = WDV * Depreciation rate = 11,000 * 10% = Rs. 1,100
This entry reflects the depreciation expense charged to the income statement (Depreciation Expense Account) and the corresponding increase in the accumulated depreciation recorded on the balance sheet (Accumulated Depreciation Account).
### Scenario 2:
1. **Purchase Price of Asset:** Rs. 100,000 2. **WDV as on 31-03-2014:** Rs. 3,000
- **Calculation of Depreciation:** - Assuming a depreciation rate of 10% per annum on WDV (as an example):
Depreciation for the year = WDV * Depreciation rate = 3,000 * 10% = Rs. 300
This entry records the depreciation expense for the year based on the WDV and updates the accumulated depreciation accordingly.
### Summary: In both scenarios, despite the asset having a useful life of NIL, depreciation is still calculated and accounted for based on the applicable depreciation rate on the WDV. The accounting entries ensure that the depreciation expense is properly recognized in the income statement and the accumulated depreciation is reflected in the balance sheet.
It's important to note that actual depreciation rates and methods may vary based on specific circumstances and accounting policies of the company. Always consult with a qualified accountant or financial advisor for precise guidance tailored to your situation and applicable accounting standards.
CAclubindia
