Schedule II - 03.07.15

1. Depreciation Accounting Schedule II Companies Act, 2013 Presented By:- Deepak Ahuja [email protected] [phone] Applicable from 01-04-2014 MCA notification no S.O.902(E) dated 26-03-2014 © No Copyrights 03-July-2015

2. Overview Companies Act, 1956 v Companies Act, 2013 Definition of Depreciation Depreciable Assets Methods of Depreciation Component based Accounting Transition

3. Companies Act, 1956 v 2013 Particulars Schedule II Companies Act, 2013 Schedule XIV Companies Act, 1956 Definitions Depreciation Depreciable Amount Useful Life (Same as AS-6) Not given Basis of Depreciation Useful life regime Rate regime Intangible Assets AS-26 Except for BOT Assets using Revenue model No mention Except for BOT Assets using Revenue model

4. Companies Act, 1956 v 2013 Particulars Schedule II Companies Act, 2013 Schedule XIV Companies Act, 1956 Shift Based Depreciation Double Shift – Excess 50% Dep. Triple Shift – Excess 100% Dep. Separate rates Component Accounting Mandatory Optional Assets costing less than Rs. 5,000/- No such Concept Depreciation at 100% Depreciation on revalued Assets Entire charge to Statement of Profit & Loss Depreciation to be provided considering the original cost of the asset

5. Definition : Depreciation Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life . Depreciation includes amortisation . cost of an asset or other amount substituted for cost, less its residual value period over which asset is expected to be available for use, or number of production units expected to be obtained Depreciable Amount Useful Life Ind As-16 : Economic Life The definition as per Accounting Standard - 6 is same as above. Part - A Clause - 1 Part - A Clause - 2

6. Depreciable Assets Assets which: Are expected to be used for more than one accounting year Have limited useful life Are held to be used in production of goods / services, i.e. not held for sale in normal course

7. Useful Life Determination of the useful life of a depreciable asset is a matter of estimation . As a general principle, the following factors shall be considered in determining the useful life of an asset : expected usage of the asset. expected physical wear and tear , which depends on operational factors technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset legal or similar limits on the use of the asset, such as the expiry dates of related leases. The estimation of the useful life of the asset is a matter of judgement based on the experience of the entity with similar assets .

8. Residual Value AS - 6 Determination of residual value of an asset is normally a difficult matter. If such value is considered as insignificant , it is normally regarded as nil . One of the bases for determining the residual value would be the realisable value of similar assets which have reached the end of their useful lives and have operated under conditions similar to those in which the asset will be used after allowing for the effect of any anticipated developments such as significant technological changes

9. Intangible Assets The provisions of the accounting standards applicable for the time being in force shall apply, i.e. AS - 26. Revenue based amortization for BOT assets (same as S-XIV 1956 Act) For amortization of other intangible assets, AS 26 needs to be applied. Amendment March 31, 2014 Amortisation of intangible assets (Toll Roads) created under Build , Operate and Transfer (BOT) Build , Own, Operate and Transfer (BOOT) or any other form of Public Private Partnership (PPP) route in case of road projects.

10. Amortisation of BOT Assets The amortisation amount or rate should ensure that the whole of the cost of the intangible asset is amortised over the concession period. Revenue shall be reviewed at the end of each financial year and projected revenue shall be adjusted to reflect such changes, if any, in the estimates as will lead to the actual collection at the end of the concession period.   Cost of Intangible Assets Cost incurred by the company in accordance with the accounting standards Actual Revenue for the year Actual revenue (Toll Charges) received during the accounting year Projected Revenue from Intangible Asset Total projected revenue from the Intangible Assets as provided to the project lender at the time of financial closure / agreement. Part - A Clause - 3

11. Methods of Depreciation March 27, 2014

12. Methods of Depreciation Amendment March 31, 2014 Part - B Part - A Clause - 3

13. Transition From 1 April 2014, the carrying amount of the asset as on that date s hall be depreciated over the remaining useful life of the asset . Remaining Useful life - Nil After retaining the residual value Transfer book value to Retained Earnings (i.e. General Reserve), or Statement of Profit & Loss Remaining Useful life - Exists Depreciate over remaining useful life Whether WDV or SLM basis or Production basis Part - C Note - 7

14. Transition Part - C Note - 7

15. Calculation of rate of depreciation Where R = Rate of Depreciation (in %) n = Remaining useful life of the asset (in years) s = Scrap value at the end of useful life of the asset C = Cost of the asset/Written down value of the asset

16. Transition Let’s take an example : Calculate Depreciation for 5 corresponding years Fixed Asset Plant & Machinery (Refinery) [ Part C - 5(IV)(e)(1) ] Original Cost ` 10,00,000/- Expired Life 5 years as on 01-04-2014 Solution : Schedule Useful Life WDV Rate XIV - 13.91% II 25 Remaining : 20 Let us calculate WDV at 01-04-2014 : Year Opening Bal Depreciation Rate Depreciation Closing Bal 2009-10 10,00,000 13.91% 1,39,100 8,60,900 2010-11 8,60,900 13.91% 1,19,751 7,41,149 2011-12 7,41,149 13.91% 1,03,094 6,38,055 2012-13 6,38,055 13.91% 88,753 5,49,302 2013-14 5,49,302 13.91% 76,408 4,72,894 WDV : ` 4,72,894/-

17. Transition Let’s take an example : Calculate Depreciation for 5 corresponding years Fixed Asset Plant & Machinery (Refinery) [ Part C - 5(IV)(e)(1) ] Original Cost ` 10,00,000/- Expired Life 5 years as on 01-04-2014 Solution : Schedule Useful Life WDV Rate XIV - 13.91% II 25 Remaining : 20 WDV : ` 4,72,894/- Let us calculate WDV rate as per Schedule II : = x 100 = x 100 = = { 1 - 0.8938} x 100 = 10.62%   10.62%

18. Transition Let’s take an example : Calculate Depreciation for 5 corresponding years Fixed Asset Plant & Machinery (Refinery) [ Part C - 5(IV)(e)(1) ] Original Cost ` 10,00,000/- Expired Life 5 years as on 01-04-2014 Solution : Schedule Useful Life WDV Rate XIV - 13.91% II 25 Remaining : 20 WDV : ` 4,72,894/- 10.62% Hence, Depreciation as per Schedule II for corresponding 5 years : Year Opening Bal Depreciation Rate Depreciation Closing Bal 2014-15 4,72,894 10.62% 50,230 4,22,664 2015-16 4,22,664 10.62% 44,895 3,77,769 2016-17 3,77,769 10.62% 40,126 3,37,643 2017-18 3,37,643 10.62% 35,864 3,01,780 2033-34 55,997 10.62% 5,948 50,049

19. Methods of Depreciation Accounting Standard (AS) - 6 : Depreciation Accounting States that the statute governing an enterprise may provide the basis for computation of the depreciation, and depreciation rates prescribed under the statute are minimum

20. Methods of Depreciation Example Schedule - II Management’s Estimate AS - 6 Useful Life (years) Rate of Depreciation Useful Life (years) Rate of Depreciation Rate of Depreciation Useful Life (years) SLM WDV SLM WDV SLM WDV 15 6.33% 18.10% 10 9.5% 25.89% 9.5% 25.89% 10 20 4.75% 13.91% 25 3.8% 10.62% either Jaggery Ltd. purchased a machinery. Both Schedule-II & Management estimates are of 5% residual value.

21. Methods of Depreciation Example Jaggery Ltd. purchased a machinery. Both Schedule-II & AS-6 prescribe 10 years as useful life Schedule - II Management’s Estimate AS - 6 Disclosure Requirement Residual Value (% of cost) Residual Value (% of cost) Residual Value (% of cost) 5% 2% 2% Not required 5% 10% either Justification if 10% applied

22. Component Accounting Where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately and hence, depreciation. Ind AS - 16 Component based accounting is mandatory . Amendment March 31, 2014 Component based accounting is optional for F.Y. 2014-15 and mandatory from F.Y. 2015-16 Part - C Note - 4

23. Double / Triple shift working Under Schedule II to the 2013 Act, no separate useful lives are prescribed for extra shift working. Rather , it states that for the period of time, an asset is used in double / triple shift depreciation will increase . Double Shift Depreciation shall be 150% of actual depreciation. Triple Shift Depreciation shall be 200% of actual depreciation. NESD : Not Eligible for Shift Depreciation Part - C Note - 6

24. Addition / Deletion during the F.Y. Where during any financial year, any of the following is made to the fixed asset : Addition, or Sale, or Demolishment, or Disbandment In such case, Depreciation shall be calculated on pro-rata basis. Part - C Note - 2

25. Disclosure Requirement AS - 6 Details of Depreciation charged, accumulated depreciation Useful life or rates of depreciation adopted Part - C Note - 3 Schedule - II Depreciation methods used Useful lives of assets for computing depreciation, if they are different from the life specified in the schedule.

26. Thank You All the Best for Audits Presented By:- Deepak Ahuja [email protected] [phone]