ICAI issues Application Guide to Schedule II Companies Act, 2013
Palani...@bluedart.com
Dear All,
Please find attached guide to provisions of Schedule II published by ICAI. The said guide clarifies whereas queries related to Schedule II of the Companies Act, 2013. By now, the fixed asset team of all the Companies, will be aware of the said changes. However, I have tried to summarize the same for benefit of others;
1. The Companies Act, 2013 has revised the method of calculation of depreciation for tangible asset from a fixed % to useful life.
2. The useful life for various tangible assets is as mentioned in schedule II of the Companies Act, 2013. The depreciation should be arrived based on the said estimated useful life.
3. The Company has the option to estimate either lower or higher useful life compared to what is stated in the Schedule II. Incase of such estimate of useful life, which is different from what is stated in Schedule II, then Company needs to disclose such difference in financials and provide necessary justification for such difference in estimate. Any such change in estimate should be supported by technical advise.
4. If the Company estimated the useful life of an asset higher than the one prescribed under Schedule II, the Company can either opt for Schedule II (lower life) or can go by its estimate. However, necessary justification needs to be provided for higher life estimate.
5. The Schedule II has not prescribed any rate for Intangible asset. The depreciation for the same is as per Accounting Standard.
6. As per Schedule II, the residual value of the tangible asset cannot exceed 5% of the original cost of the asset. However, the Company has the option to opt of higher residual value, subject to necessary justification. The justification needs to be supported by Technical advise. The same should also be disclosed in the financials.
7. The Company can opt for lesser or NIL residual value for a tangible asset. There is no need for any disclosure for the same.
8. If the estimated life of an asset is lesser compared to old Companies Act schedule, then, the Company needs to depreciate the carrying value of the asset in remaining period of its useful life.
9. If as per Schedule II, the existing asset has no estimated useful life, then, the carrying value of the asset can either be charged to current year P&L or has the option reduce the same from the retaining earning.
10. If life of the major component of a principal asset is different from the asset, then, the same needs to be depreciated separately. If Component has higher life, then, Company has the option to follow the estimate useful life applicable to the principal asset. Based on materiality, the Company needs to evaluate the life of major component of all asset. The said changes are mandatory from April 1, 2015.
11. If the value of asset is Rs.5000 or less , the earlier Companies Act, allowed the Companies to depreciate full value of the asset in the same year. As per revised schedule II, the Company can have a separate policy to depreciate all the asset upto certain value. Based on materiality concept, the said value should be fixed and should be disclosed in the financials.
12. As per Ind As, the Company needs to evaluate the useful life of an asset every year. As per existing AS, the said value needs to evaluated on reasonable period.
Regards…Pal
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