| QUERY: | M/s. ABC Ltd. is engaged in the business of cement manufacturing and power generation. Existing depreciation policy of M/s. ABC Ltd. is as follows: “Depreciation is provided on written down value method at the rates specified in schedule XIV of the Companies Act, 1956 or the rates prescribed in the Income-tax Act, 1961 whichever is higher. However in case of those assets whose WDV as per Income-tax Act,1961 is lower than the WDV as per books, additional depreciation is provided to align the book WDV as per Income-tax Act, 1961.” The Companies Act, 2013 provides that depreciation is required to be charged as per useful life prescribed in Schedule-II as per provision of section 123 of the Act. Provision of Schedule-II of Companies Act, 2013 “Part ‘A’ 1…….. 3. Without prejudice to the foregoing provisions of paragraph 1, (i) In case of such class of companies, as may be prescribed and whose financial statements comply with the accounting standards prescribed for such class of companies under section 133, the useful life of an asset shall not normally be different from the useful life and the residual value shall not be different from that as indicated in Part C, provided that if such a company uses a useful life or residual value which is different from the useful life or residual value indicated therein, it shall disclose the justification for the same. (ii) In respect of other companies the useful life of an asset shall not be longer than the useful life and the residual value shall not be higher than that prescribed in Part C.” Queries (a) Whether company can continue its existing depreciation policy i.e., charging depreciation at higher rate from Companies Act (by deriving rates as per useful life as specified under Schedule-II and Income -tax Act, with WDV alignment, even after applicability of Companies Act, 2013. If yes, please specify justification/disclosure (if any) required to be given. (b) Whether company can consider different useful life (higher or lower) from the useful life specified in Schedule-II. If yes, please specify justification/disclosure (if any) required to be given. (c) Is there any retrospective impact if – • Company shift from existing policy (WDV method with alignment) to SLM method under new Companies Act, 2013 and charge depreciation as per useful life prescribed under Schedule-II. • Company shift from existing policy (WDV method with alignment) to WDV method (without alignment) under new Companies Act, 2013 and charge depreciation as per useful life prescribed under Schedule-II. (d) How the rates of depreciation would be arrived for each asset under WDV method as per Schedule-II, where each asset is capitalised at different dates in a year |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 123 of Companies Act |
| GENRE: | Company Law |
| CATCH WORDS: | Companies Act, depreciation |
(i) As per schedule II of Companies Act, 2013, in case of prescribed class of companies, whose financial statements comply with Accounting Standards prescribed for such class of companies under section 133 of the Act, can have different useful life and residual value other than indicated in Part C of Schedule II of the Act, on disclosure of justification for the same i.e.