Detailed Analysis of Guidance Note on Accounting for Depreciation in Companies, here we are providing complete analysis of Latest Guidance Note on Accounting for Depreciation as per Companies act 2013. In this article you can find everything you want to know about for Guidance Note on Accounting for Depreciation.
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Analysis of Guidance Note on Accounting for Depreciation
- The Guidance Note on Accounting for depreciation in companies comprehensively deals with various aspects of accounting for depreciation, particularly in reference to the corporate sector.
- Depreciation method(s) (including the methods of providing for arrears of depreciation) used by the company shall be disclosed by the company.
- A company may adopt more than one methods of depreciation, for different types of assets or for assets located at different geographical areas, provided the same are consistently followed from year to year.
- A retrospective change in the method of providing depreciation should be made only if the adoption of the new method is for one of the following reasons: The change is required by the statute or for the compliance with an accounting standard or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements of the enterprise as compared to the previous one.
- The rate of depreciation to be used should be the rate that reflects the true commercial depreciation (based on technological evaluation) or the rates as contained in Schedule III to the Companies Act, 2013 , which ever is higher.
- A company may, if the management so desires, group additions and disposals in appropriate time period(s), e.g., 15 days, a month, a quarter etc., for the purpose of charging pro rata depreciation in respect of additions and disposals of its assets keeping in view the materiality of the amounts involved. How ever, the company can also treat each addition separation individually, if it does not lead to complexity in the treatment of Accounts.
- The rates of depreciation as per the Schedule III should be applied proportionately taking into consideration the duration of the financial year if it is more/less than 12 months.
- The Schedule is silent in regard to the minimum amount, below which, the low value items are to be written off in the year of acquisition. So, we can interpret it in the following way: The concept of materiality should be kept in mind while deciding the amounts to be written off as regard to the low value items.
- For the purpose of computation of managerial remuneration, only the Written Down Value (WDV) method of depreciation can be used; Straight Line Method (SLM) is not permitted in this case.
- In the case of depreciation on revalued assets, the practice of not charging the additional depreciation against Revaluation Reserve would give a more realistic appraisal of the company’s operations in an inflationary situation.
The above mentioned points are the basic summary of the Guidance Note on Accounting of Depreciation in Companies. The same can be followed while preparing the Books of Accounts so that the Company depicts a true & fair view of its Assets & the person who is trying to interpret the Financial Statements can make proper comparisons from the previous year’s reports of the same company and can also compare the same with the reports of other companies.