Depreciation as per companies act 2013

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Jitendra (Querist)
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27 February 2015 Dear Sir,

Please note that we are currently following depreciation policy as under.

Can anybody please tell me hoe can we comply to Schedule II to Companies act 2013.

Depreciation on fixed assets is calculated on a straight-line basis using the rates arrived at based on the useful lives estimated by the management, or those prescribed under the Schedule XIV to the Companies Act, 1956, whichever is higher. The Company has used the following rates to provide depreciation on its fixed assets.

Asset type Estimated asset useful life
Leasehold improvements lease term or 15 years whichever is less
Office equipment 5 years
Furniture and fixtures 10 years
Computers (Servers and storage) 4 years
Computers (Others) 3 years
Computer Software 3 years

Art assets are not depreciated under the current practice.

No depreciation is provided for the month in which the asset is sold or disposed.

Tangible assets having an original cost not exceeding Rs.0.68 Lakhs per unit/item are depreciated at 100% in the month of acquisition except those assets purchased as part of a major capital outlay, in which case they are depreciated at the above mentioned rates. Computer Software having an original cost not exceeding Rs.67.50 Lakhs in aggregate are depreciated at 100% in the month of acquisition. In case if computer software is purchased as part of a major capital outlay then irrespective of amount of computer software it will be depreciated at the above mentioned rates.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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21 July 2024 To comply with Schedule II of the Companies Act, 2013, which governs the method and rates of depreciation for fixed assets, you should align your depreciation policy accordingly. Here’s how you can ensure compliance based on the information provided:

### Steps to Comply with Schedule II:

1. **Identify Useful Lives and Depreciation Rates:**
- Schedule II of the Companies Act, 2013 prescribes specific useful lives for different categories of assets. Your company should review and adopt these prescribed useful lives instead of those estimated by management or used under Schedule XIV of the Companies Act, 1956.

2. **Adjust Depreciation Calculation Method:**
- Depreciation should be calculated using the Straight Line Method (SLM) or the Written Down Value (WDV) method as prescribed under Schedule II.
- Ensure that the depreciation rates used align with the rates prescribed in Schedule II for each asset category.

3. **Specific Adjustments Based on the Information Provided:**
- **Leasehold Improvements:** Depreciate over the shorter of the lease term or 15 years.
- **Office Equipment, Furniture and Fixtures, Computers (Servers and Storage), Computers (Others), Computer Software:** Use the prescribed useful lives from Schedule II (which may differ from your current estimates).
- Ensure depreciation is provided monthly, even in the month of sale or disposal of an asset.

4. **Treatment of Low-Value Assets:**
- Tangible assets with a cost not exceeding Rs. 0.68 lakhs per unit should be depreciated at 100% in the month of acquisition, unless part of a major capital outlay.
- Computer software costing not more than Rs. 67.50 lakhs in aggregate should also be depreciated at 100% in the month of acquisition, unless part of a major capital outlay.

### Accounting Entries Example:
Assuming you acquire office equipment worth Rs. 5,00,000 in January 2024, and you adopt Schedule II for depreciation:

- Depreciation calculation for office equipment (useful life 5 years):
- Annual depreciation = Cost of asset / Useful life
= Rs. 5,00,000 / 5
= Rs. 1,00,000 per year

- Monthly depreciation = Annual depreciation / 12
= Rs. 1,00,000 / 12
= Rs. 8,333.33 per month

- Monthly accounting entry:
- Debit: Depreciation Expense Account Rs. 8,333.33
- Credit: Accumulated Depreciation Account Rs. 8,333.33

### Compliance Note:
Ensure that the depreciation rates and methods are consistently applied across all assets and that they comply with the specific requirements of Schedule II of the Companies Act, 2013. This compliance ensures accurate financial reporting and adherence to regulatory standards.

For precise compliance and adjustments specific to your company's situation, consulting with a qualified accountant or professional familiar with Indian company law and accounting practices is recommended. They can provide tailored guidance and ensure that your depreciation policies align correctly with statutory requirements.