{"id":41290,"date":"2022-03-22T11:42:38","date_gmt":"2022-03-22T06:12:38","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=41290"},"modified":"2022-03-22T11:44:22","modified_gmt":"2022-03-22T06:14:22","slug":"depreciation-under-companies-act-2013","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/","title":{"rendered":"Depreciation under Companies Act, 2013"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Companies Act 1956\nprovided for various minimum depreciation rates for depreciable assets.\nHowever, With introduction of the Companies Act,2013, Schedule II to the Act of\n2013 provides for the depreciable value to be allocated to each item over its\nuseful lifetime of the Asset. In this article, we will discuss&nbsp;<strong>Depreciation\nunder Companies Act, 2013.<\/strong><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Depreciation_under_Companies_Act_2013\" >Depreciation under Companies Act,\n2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Critical_Points_for_Depreciation_under_Companies_Act_2013\" >Critical Points for Depreciation\nunder Companies Act, 2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Details_Required_for_calculating_Depreciation_under_Companies_Act_2013\" >Details\nRequired for calculating Depreciation under Companies Act, 2013-<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Depreciation_Accounting_under_the_Companies_Act_2013\" >Depreciation\nAccounting under the Companies Act, 2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Points_to_be_kept_in_mind_while_calculating_Depreciation_under_the_companies_act_2013_on_tangible_assets\" >Points\nto be kept in mind while calculating Depreciation under the companies act, 2013\non tangible assets<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Method_of_Depreciation_under_Companies_Act2013\" >Method of Depreciation under Companies\nAct,2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Difference_between_Depreciation_under_Companies_Act2013_and_Depreciation_under_the_Income_Tax_Act\" >Difference\nbetween Depreciation under Companies Act,2013 and Depreciation under the Income\nTax Act<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Rate_of_Depreciation_Under_Companies_Act2013\" >Rate of Depreciation Under Companies\nAct,2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Other_factors_for_Depreciation_under_Companies_Act_2013\" >Other factors for Depreciation under\nCompanies Act, 2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/corpbiz.io\/learning\/depreciation-under-companies-act-2013\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Depreciation_under_Companies_Act_2013\"><\/span>Depreciation under Companies Act,\n2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per companies act\n2013, Depreciation is applicable for assets purchased on or after 1st April\n2014. It only specifies the useful life of different assets and does not\nprovide any particular depreciation rates.<\/p>\n\n\n\n<p>Any company or individual\ncan use the depreciation formula &amp; the useful life given in Schedule II of\nCompanies Act, 2013 to calculate the Depreciation rate under the companies act,\n2013.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Critical_Points_for_Depreciation_under_Companies_Act_2013\"><\/span>Critical Points for Depreciation\nunder Companies Act, 2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>It applies to Assets\npurchased on or after 1st April 2014.<\/li><li>To calculate\nDepreciation, the formula considers the Asset&#8217;s cost, useful life, and Residual\nValue.<\/li><li>Depreciation is\ncalculated annually until the end of the useful life of an asset.<\/li><li>The residual value is\ntreated at a maximum of 5% of the asset cost.<\/li><li>For finding Depreciation\nunder the Companies Act 2013, a company can use either the Straight Line Method\n(SLM) or WDV (Written Down Value) method.<\/li><li>Schedule II of this Act\nprovides for the useful life of Assets tangible in Nature.<\/li><li>It is essential to\nconsider the Chart for Depreciation rate under the Companies Act, 2013. Also,\nfor Intangible Assets, provisions of AS 26 shall apply.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Details_Required_for_calculating_Depreciation_under_Companies_Act_2013\"><\/span>Details\nRequired for calculating Depreciation under Companies Act, 2013-<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Date of Purchase of\nAsset.<\/li><li>Cost of Asset<\/li><li>Residual Value or Salvage\nValue<\/li><li>Particulars of the useful\nlife of an asset<\/li><li>Method of Depreciation\nused by the company<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Depreciation_Accounting_under_the_Companies_Act_2013\"><\/span>Depreciation\nAccounting under the Companies Act, 2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>To ensure the\napplicability to the requirements of the Companies Act, 2013 &#8211; Schedule II, the\ncompanies are categorized into three classes according to:<\/p>\n\n\n\n<ul><li>The prescribed class of companies with financial statements must follow the Accounting Standard defined under 2013. Act The useful lives must be under the Schedule as long as should there be a deviation from this, and the reasons behind the change should be explained.<\/li><li>Companies that are regulated under other laws, e.g., electricity companies, the useful life of the company or remaining value for any specific asset, as notified for accounting purposes by a Regulatory Authority constituted under \u2013<\/li><\/ul>\n\n\n\n<ol><li>An Act of Parliament or\u00a0<\/li><li>By Central Government shall be applied in calculating the Depreciation that must be paid for the Asset, regardless of the rules in this Schedule.<\/li><\/ol>\n\n\n\n<ul><li>For other companies, the useful life of an asset should not exceed the useful lifespan stipulated, and the value of residuals must not exceed the value specified in Part C.<\/li><\/ul>\n\n\n\n<p>The new Act includes the\nnotion that assets can be componentized. When the cost of a portion of the\nAsset is essential to the overall cost of the Asset, and its useful time of\nthat portion is different from the life of the other Asset, the useful life of\nthe significant portion must be determined on its own.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Points_to_be_kept_in_mind_while_calculating_Depreciation_under_the_companies_act_2013_on_tangible_assets\"><\/span>Points\nto be kept in mind while calculating Depreciation under the companies act, 2013\non tangible assets<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>1. Depreciation on a pro-rata basis<\/strong>-Depreciation is calculated from the date of such addition\/sale \/destruction in the below-mentioned scenarios<\/p>\n\n\n\n<p>(i) Any change is made to\nany asset.<\/p>\n\n\n\n<p>(ii) Any asset is sold<\/p>\n\n\n\n<p>(iii) Any asset is\ndisposed of, damaged, or destroyed.<\/p>\n\n\n\n<p><strong>2. Additional\nDepreciation-<\/strong>The calculations of the\nadditional Depreciation for shift workings must be made separately in the ratio\nof number of days for which concern worked a double shift or triple shift bears\nto normal number of working days during the year.<\/p>\n\n\n\n<p>For calculating the same,\nthe particular number of working days during the year shall be deemed to be\n\u2013&nbsp;<\/p>\n\n\n\n<p><strong>(a) <\/strong>For a seasonal factory &#8211; The number of days on which the factory actually worked during year or 180 days, whichever is higher,<\/p>\n\n\n\n<p><strong>(b)<\/strong> Others- Number of days on which the factory or establishment or establishment worked during the year or 240 days, whichever is higher.<\/p>\n\n\n\n<p><strong>3. Double Shift depreciation-<\/strong> In case of Double shifts, the Depreciation increases\u00a0<\/p>\n\n\n\n<p><strong>4. Triple Shift depreciation-<\/strong> In the case of Triple Shift, the Depreciation increases by 100% for period in which Asset is in use for the triple shift.<\/p>\n\n\n\n<p><strong>5.<\/strong><strong>No extra shift depreciation:<\/strong>&nbsp;Schedule II of the Companies Act,2013 has specific assets\nwith NESD, and a company cannot charge additional shift depreciation in respect\nof such assets. Residual value of an asset must not be greater than 5% of the\nAsset&#8217;s original cost.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Method_of_Depreciation_under_Companies_Act2013\"><\/span>Method of Depreciation under Companies\nAct,2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Below mentioned are the\nmethods of Depreciation under Companies ct,2013<\/p>\n\n\n\n<ul><li>Straight Line Method-SLM is one of the simplest methods of calculating Depreciation per the companies act,2013. Under the SLM method, the total depreciable amount is apportioned evenly over the Asset&#8217;s useful life every year.<\/li><li>Written Down Value Method (WDV)-WDV is also known as the Declining balance method. Under this method, a company charge the depreciation rate on the reducing balance of the Asset.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Difference_between_Depreciation_under_Companies_Act2013_and_Depreciation_under_the_Income_Tax_Act\"><\/span>Difference\nbetween Depreciation under Companies Act,2013 and Depreciation under the Income\nTax Act<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The company claims\nDepreciation for two purposes-<\/p>\n\n\n\n<ol><li>Accounting Purpose<\/li><li>Taxation Purpose<\/li><\/ol>\n\n\n\n<p>For Income Tax purposes,\nDepreciation refers to 2 aspects-A decrease in value of assets and allocation\nof the cost of assets to the useful life of the assets.<\/p>\n\n\n\n<p>As per Companies\nAct,2013, Depreciation is calculated based on the useful life of assets and not\nbased on the rate of Depreciation.<\/p>\n\n\n\n<p>In <a href=\"https:\/\/corpbiz.io\/income-tax-return-filing\"><strong>Income tax<\/strong><\/a>, Depreciation is allowed as an expense to the company while arriving at income under the head PGBP (Profit and Gain from Business and Profession) from the year on which Asset is first used. It is calculated based on the block of assets at the rates specified in the income tax act.<\/p>\n\n\n\n<p>The methods of\ncalculating Depreciation differs for taxation and accounting; that is why the\namount of Depreciation as Per the Income-tax act and Companies Act,2013 varies.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Rate_of_Depreciation_Under_Companies_Act2013\"><\/span>Rate of Depreciation Under Companies\nAct,2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Depreciation refers to\ndecrease in the value of an asset, which appears every year. Depreciation is\ncalculated based on the rate of Depreciation mentioned in the Act. The\ndepreciation rate varies from one class of assets to another class assets. The\nmotive of Depreciation is to allocate the value of the Asset regularly. The\nallocation is performed over the period for which the Asset is used. The\nvarious depreciation rates which should be used for different categories of\nassets are mentioned in Schedule II of the Companies Act, 2013. You can visit\nthe MCA portal to get more information about the rate. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Other_factors_for_Depreciation_under_Companies_Act_2013\"><\/span>Other factors for Depreciation under\nCompanies Act, 2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The method of\nDepreciation used by business must be included in the financial statements and\nthe useful lives of assets used to calculate Depreciation when it is different\nfrom the period specified within the plan. Factory Buildings do not include <strong>godowns,\noffices, and employee quarters<\/strong>. In any fiscal year, when there is a\nmodification to any asset, disposal demolition, sale or destruction of any\nproperty, the Depreciation for these assets will be determined on a pro-rata\nbasis starting from the date of the acquisition or in the event of a sale,\ndisposal, demolition or destruction, the date may be, until the date of the\nremoval, sale destruction or demolition.<\/p>\n\n\n\n<p>Additionally, when\nconsidering the use duration of the Asset, the useful life stated as Part C in the\nSchedule applies to all assets and in cases where the costs of a particular\npart of an asset are essential to the total cost of the Asset and its useful\nlife is different from the practical life of the other assets. The effective\nlifespan of the part significant to the Asset must be determined separately and\nproportionately.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The <strong>Companies Act 2013<\/strong><sup><a href=\"https:\/\/www.mca.gov.in\/content\/mca\/global\/en\/acts-rules\/ebooks.html\"><strong>[1]<\/strong><\/a><\/sup> has been implemented in India beginning in the financial year 2014-15. The transitional phase for companies moving from the old Companies Act 1956 to the new Companies Act 2013 has posed numerous challenges. One of the problems is presented in Schedule II of the Companies Act, 2013, formulated for &#8216;useful life&#8217; purposes of calculating Depreciation. For other companies, useful life of an asset should not exceed the useful lifespan stipulated, and the value of residuals must not exceed the value specified in Part C.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our Article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/audit-under-companies-act-2013\/\">Audit under Companies Act, 2013: Explained\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Companies Act 1956 provided for various minimum depreciation rates for depreciable assets. However, With introduction of the Companies Act,2013, Schedule II to the Act of 2013 provides for the depreciable value to be allocated to each item over its useful lifetime of the Asset. In this article, we will discuss&nbsp;Depreciation under Companies Act, 2013. [&hellip;]<\/p>\n","protected":false},"author":12,"featured_media":41296,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[120],"tags":[2190],"acf":{"service_id":"321"},"authorName":"Priyanka Bajpayee","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/03\/IMG-20220303-WA0005.jpg","authorDescription":"A Company Secretary together with PG in international Business, she has gained significant experience as legal content writer. She has keen interest in doing research and writing on legal and financial subject matters. She also holds work experience in legal compliances.","postViews":18352,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41290"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=41290"}],"version-history":[{"count":15,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41290\/revisions"}],"predecessor-version":[{"id":41306,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41290\/revisions\/41306"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/41296"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=41290"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=41290"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=41290"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}