Depreciation as per Companies Act, 2013 – Brief Analysis
As we know, the value of any asset gets reduced over a period of time mainly due to wear and tear or due to the passage of time. Such a process of reduction in the value over a period of time is termed as ‘depreciation’.
From the company law perspective, as per provisions of section 123(2) of the Companies Act, 2013, depreciation shall be provided in accordance with the provisions of schedule II.
Let us briefly understand the depreciation provisions as covered under the Companies Act, 2013.
First of all, let us go through the following important definitions provided under Schedule II –
Depreciation means a systematic allocation of the ‘depreciable amount’ of an asset over its ‘useful life’. Importantly, the term depreciation includes amortization.
2. Depreciable amount –
Depreciable amount of an asset means the cost of an asset (or other amount substituted for cost) less its residual value.
Useful life of an asset means the period over which an asset is expected to be available for use by an entity (or the number of production/ similar units expected to be obtained from the asset by an entity).
Other important points –
> The useful life of an asset shall not ordinarily be different from the useful life specified in Part C of Schedule II.
In case the company adopts useful life different from the useful life specified in Part C, then, the financial statement of the company shall disclose such difference along with justification thereof.
> The residual value of an asset shall not be more than 5% of the original cost of an asset.
In case the company adopts a different residual value above the prescribed limit, then, the financial statement of the company shall disclose such difference along with justification thereof.
> Double shift and/ or triple shift depreciation –
In case the asset is used for the double shift for any time during the year, then, the depreciation will increase by 50% for the period for which the asset is used for a double shift.
In case the asset is used for the triple shift for any time during the year, then, the depreciation will increase by 100% for the period for which the asset is used for a triple shift.
Importantly, extra shift depreciation will not be available for the assets specifically marked as NESD (i.e. No Extra Shift Depreciation) in part C of schedule II.
> Provisions of depreciation under the Companies Act, 2013 are applicable only to the tangible assets. Accounting Standard 26 is to be followed for intangible assets.
capacity of more than 100 tons 20 3. Heavy lift equipment – cranes with a capacity of less than 100 tons 15 4. Transmission line, tunneling equipment (NESD) 10 5. Earth moving equipment 9 6. Others (including material handling/ pipeline/ welding equipment) (NESD) 12 Plant and machinery used in salt works (NESD) 15 Furniture & fittings (NESD) 1. General furniture & fittings 10 2. Furniture & fittings used in restaurants and boarding houses, hotels, schools/ colleges and other educational institutions, welfare centres, libraries, cinema house, meeting halls, theatres & circuses. 8 3. Furniture & fittings let out on hire for use on the occasion of marriage and similar functions 8 Motor Vehicles (NESD) 1. Motor cycles, scooters and other mopeds 10 2. Motor buses, motor cars, motor taxies and motor lorries used in the business of running them on hire 6 3. Motor buses, motor cars and motor lorries other than those used in the business of running them on hire 8 4. Motor tractors, harvesting combines & heavy vehicles 8 5. Electrically operated vehicles (including battery powered or fuel cell powered vehicles) 8 Ships (NESD) Ocean going ships 1. Bulk carriers & liner vessels 25 2. Crude tankers, product carriers and easy chemical carriers with/ without conventional tank coatings 20 3. Chemical and acid carriers with stainless steel tanks 25 4. Chemical and acid carrier with other tanks 20 5. Liquified gas carriers 30 6. Conventional large passenger vessels (which are used for cruise purpose also) 30 7. Coastal service ships of all categories 30 8. Offshore supply & support vessels 20 9. Catamarans and other high-speed passenger for ship/ boat 20 10. Drill ships 25 11. Hovercrafts 15 12. Fishing vessels with a wooden hull 10 13. Dredgers, barges, tugs, survey launches and other similar ships used mainly for dredging purpose 14 Vessels ordinarily operating on inland waters – 1. Speed boats 13 2. Other vessels 28 Aircrafts/ helicopters (NESD) 20 Railway sidings, rolling, locomotives, tramways and railways used by concerns (excluding railway concerns) (NESD) 15 Ropeway structures (NESD) 15 Office equipment (NESD) 5 Computer and data processing units (NESD) 1. Servers & networks 6 2. End user devices (such as desktop, laptops, etc.) 3 Laboratory equipment (NESD) 1. General laboratory equipment 10 2. Laboratory equipment used in educational institutions 5 Electrical Installations and Equipment (NESD) 10 Hydraulic works, pipelines and sluices (NESD) 15 " width="600" height="300" />
Useful life of an asset as specified in part C of Schedule II –
Summarizing hereunder the useful life of different assets as specified in part C of Schedule II –
