Salient Features of Schedule II of the Companies Act, 2013. The recent implementation of the Companies Act, 2013 is rightly treated as commencement of a new era in corporate legislation in India. It has brought sweeping changes in different rules and regulations governing the functioning of corporates in India as compared to the old Companies Act, 1956 (the old Act). One such change pertains to Depreciation contained in Schedule II of this new Act, introducing the concept of useful life as against minimum rates of depreciation applied so far. The old Act of 1956 provided for different minimum rates of depreciation on depreciable assets, whereas Schedule II inserted under the new Act provides for the allocation of depreciable amount of an asset over the useful life of an asset.
The different aspects of Depreciation as contained in the Companies Act, 2013 as compared to the old Companies Act, 1956 are discussed hereunder.Recently we provide complete details for Depreciation Accounting under the Companies Act, 2013 Now you can scroll down below and check complete details regarding “Salient Features of Schedule II of the Companies Act, 2013”
Salient Features of Schedule II of the Companies Act, 2013
- Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The concept of useful life is pivotal in computation of depreciation as per the new provisions
- The Companies Act, 2013 vide its Schedule –II prescribes for both calculation of depreciation based on useful life of an individual asset as well as accounting of depreciation.
- The ministry of corporate affairs vide its notification dated 16th February 2015 has clarified that a company which follows the accounting standards specified in the Companies (Accounting Standards) Rules, 2006 shall comply with such standards only and not the Standards specified in the rules specified in the new act. Accordingly, the standards of accounting related to depreciation accounting i.e. Accounting Standard 6 on Depreciation Accounting as specified under the old act shall be deemed to be the accounting standards and shall continue to operate till the accounting standards are specified by the Central Government under section 133 of the new Act
- For the purpose of computing depreciation, the new act defines the term “depreciable amount” as the cost of an asset, or other amount substituted for cost, less its residual value, such residual value being 5 percent of the original cost of the asset. It also defines the term “Useful Life “ as the period over which an asset is available for use or as the number of production or similar units expected to be obtained from the asset by the entity
- The useful life of an asset shall not be longer than the useful life specified in Part ‘C’ and the residual value of an asset shall not be more than 5% of the original cost of the asset. Provided that where a company uses a useful life or residual value of the asset which is different from the above limits, justification for the difference shall be disclosed in its financial statement. For a large number of assets, Schedule II prescribes useful lives that are significantly lower than those envisaged in Schedule XIV to the 1956 Act.
- Residual value is prescribed at 5% of the original cost as the maximum quantum. Earlier, there was no fixed Residual Value, but, while prescribing the rates; it had factored‐in only 95% of the cost of the assets, thereby leaving only 5% as Residual Value.
- The new Act provides for the concept of componentization of assets. 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.
- List of Assets has become more exhaustive and specific.
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