D.P. Shah – D. Shah & Associates 1

Transcription

D.P. Shah – D. Shah & Associates
1
Companies Act -1956
Companies Act 2013
2
 While discussing the new provisions under Companies





Act 2013 regarding
preparation
statements, we will cover
Books of accounts
Depreciation
Financial statements
Consolidated Financial Statements
Directors Report
of
Financial
3
Key Provisions –
Books of Accounts
4
Companies Act 1956
Companies Act 2013
 Section 2(8) provides definition of
`book and paper’ and `book or paper’
whereas `books of accounts’ have been
defined in Section 209 of the Act.
 Section 2(12) defines `book and
paper’ and `book or paper’ whereas
`books of accounts’ have been defined
in Section 2(13) of the Act.
Section 2(17) defines Financial year.
Section 2(41) defines financial year.
Section 209 to Section 223 governs
provisions relating to accounts .
Section 128 to Section 137 governs
provisions relating to accounts
Revised Schedule VI provides for
general instructions for preparation of
Balance sheet and Statement of Profit
and loss.
Schedule III provides general
instructions for preparation of Balance
sheet and Statement of profit and loss
of a Company
Provisions relating to Accounts
5
Companies Act 1956
Companies Act 2013
Schedule XIV to the Act provides the  Schedule II provides Useful Lives to
rates at which depreciation is to be compute depreciation on various assets
provided on different class of assets ( on and manner of computing depreciation
WDV or SLM basis)
Section 350 providing ascertainment of Section 123 (2)
depreciation
Companies (Accounting Standard s) Companies (Account) Rules 2014 inter alia,
provides:
Rules 2006
a. Manner of keeping books of accounts.
b. Maintenance and inspection of certain
financial information by directors.
As a transitory provision Accounting
Standard rules 2006 continue to be in
force till the time new rules are
announced. (Rule 7)
6
Companies Act 1956
Companies Act 2013
Though the Companies Act, 1956
does not define ‘Books of Account’ ,
but section 209(1) prescribed the
manner of keeping books of account
as :
1) Every company shall keep at its
registered office proper books of
account with respect to:
(a) all sums of money received and
expended by the company and the
matters in respect of which the
receipt and expenditure take place ;
(b) all sales and purchases of goods
by the company ;
(c) the assets and liabilities of the
company ; and
Section 2 (12) “book and paper”
and “book or paper” include books of
account, deeds, vouchers, writings,
documents, minutes and registers
maintained on paper or in
electronic form;
Section 2(3) defining `Books of
accounts’ as “books of account”
includes records maintained in
respect of—
(i) all sums of money received and
expended by a company and matters
in
relation to which the receipts and
expenditure take place;
Books
7
Companies Act 1956
Companies Act 2013
(d) in the case of a company
pertaining to any class of
companies engaged in production,
processing,
manufacturing
or
mining activities, such particulars
relating to utilization of material or
labor or to other items of cost as
may be prescribed, if such class of
companies is required by the
Central Government to include
such particulars in the books of
account :
(ii) all sales and purchases of goods
and services by the company;
(iii) the assets and liabilities of the
company; and
(iv) the items of cost as may be
prescribed under section 148 in the
case of
a company which belongs to any
class of companies specified under
that section; yet to be notified.
Books
8
Changes:
 Definition of ‘book and paper’ and ‘book or paper’ is
modified, so as to include minutes and registers and
all documents maintained in electronics form also
form part of it.
 Now `books of account’ are specifically defined.
9
 Companies (Account) Rules 2014 inter alia, provides
manner of keeping books of accounts in electronic mode.
It reads as;
 3. Manner of books of account to be kept in electronic
mode.- (1) The books of account and other relevant
books and papers maintained in electronic mode
shall remain accessible in India so as to be usable for
subsequent reference.
 (2) The books of account and other relevant books and
papers referred to in sub-rule (1) shall be retained
completely in the format in which they were originally
generated, sent or received, or in a format which shall
present accurately the information generated, sent or
received and the information contained in the electronic
records shall remain complete and unaltered.
 (3) The information received from branch offices shall not
be altered and shall be kept in a manner where it shall
depict what was originally received from the branches.
10
(4) The information in the electronic record of the
document shall be capable of being displayed in a legible
form.
(5) There shall be a proper system for storage, retrieval,
display or printout of the electronic records as the Audit
Committee, if any, or the Board may deem appropriate
and such records shall not be disposed of or rendered
unusable, unless permitted by law:
Provided that the back-up of the books of account and
other books and papers of the company maintained in
electronic mode, including at a place outside India, if
any, shall be kept in servers physically located in India on
a periodic basis.
11
(6) The company shall intimate to the Registrar on an annual
basis at the time of filing of financial statement(a) the name of the service provider;
(b) the internet protocol address of service provider;
(c) the location of the service provider (wherever applicable);
(d) where the books of account and other books and papers
are maintained on cloud, such address as provided by the
service provider.
Explanation.- For the purposes of this rule, the expression
"electronic mode" includes “electronic form” as defined in
clause (r) of sub-section (1) of section 2 of Information
Technology Act, 2000 (21 of 2000) and also includes an
electronic record as defined in clause (t) of sub-section (1) of
section 2 of the Information Technology Act, 2000 (21 of 2000)
and “books of account ” shall have the meaning assigned to it
under the Act.
12
• Unlike The Companies Act 1956, now manner of
maintenance of books of accounts under electronic mode
have prescribed along with filling of the details of the
service providers with its IP Address, Location of servers
etc.
• It is also provided that vouchers be maintained in
legible form.
• Audit committee or board is required to evolved a
system for storage, retrieval and display of print out of
electronic records and disposal there of.
• In case of accounts being maintained in electronic mode
out side India it is required that the back ups there of be
kept in servers physically located in India.
13
• If the managing director, the whole-time director in charge of finance, the
Chief Financial Officer or any other person of a company charged by the
Board with the duty of complying with the provisions of this section,
contravenes such provisions, such managing director, whole-time director
in charge of finance, Chief Financial officer or such other person of the
company shall be punishable with imprisonment for a term which may
extend to one year or with fine which shall not be less than fifty thousand
rupees but which may extend to five lakh rupees or with both.
• It may be interesting to note that in view of representations various
Chamber of Commerce, Standing committee on finance had made
following suggestion on the issue of penalty in case of default:
•“The Committee are of the view that the Ministry may consider a less harsh
position on the question of default not committed willfully with respect to
books of accounts etc., to be kept by the company, particularly in the
context to the existing position in law, which provides defenses for nonwillful cases.” However the relief prescribed by the Standing Committee on
Finance constituted by Parliament has not been addressed by MCA.
14
• Companies Act 1956, did not permit inspection of books of
accounts by any director of the company.
• CA 2013 by Section 128 (3) provides that provides that books
of accounts etc shall be open for inspection by any of the
director of the company and under Rule 4 it provides the
manner and conditions of inspection of books of accounts of
company and its subsidiary.
15
It has been provided that a Director of the Company
can inspect books of accounts of the company.
1. Can a director nominate a professional for carrying
out inspection of books of accounts on his behalf ?
2. Can a director of holding company inspect books
of accounts of subsidiary ?
16
3. Maintenance of books of accounts in electronic form
has been permitted now in CA 2013, similar provision
was not there in CA 1956. Most of the companies were
maintaining accounts in SAP/ERP or Tally or such
other software. Was it illegal to maintain accounts in
electronic form under the regime of CA 1956 ?
17
Poser
 4. Section 116 (5) inter alia, provides that books of
accounts together with vouchers be kept in good order
for eight years or till the completion of inspection if
any, which ever is later.
 Now a days every company has a space problem.
Whether maintaining vouchers in electronic form i.e.
scanned copy, would be sufficient compliance ?
18
Financial Statement
19
Companies Act, 1956
Companies Act, 2013
“Financial Year” means, in
relation to any body
corporate, the period in
respect of which any profit
and loss account of the body
corporate laid before it in
annual general meeting is
made up, whether that period
is a year or not:
“Financial Year” means in
relation to any company or
body corporate, means the
period ending 31st day of the
March every year, and where
it has been incorporated on
or after the 1st day of January
of a year, the period ending
on 31st day of march of the
following year, in respect
where of financial statement
of the company or body
corporate is made up.
20
Changes
 1. Definition - now financial year can only be of April to
March and only a company or body corporate, which Is
a holding company or subsidiary company of a
company incorporate outside India and is required to
follow a different financial year for consolidation of its
accounts out side India, may have different financial
year subject to approval of tribunal.
 2. A transition period of 2 year has been prescribed for
companies existing on the commencement of this Act
to align their financial year to April-March.
21
 The definition of Financial Statement is not provided
under the Companies Act, 1956.
 But the manner of keeping books of account is
provided in section 209 of the Companies Act, 1956
22
MEANING OF “FINANCIAL STATEMENT”
[Sec. 2(40)]
In relation to company, includes:
a) Balance Sheet at the end of financial year.
b) statement of Profit & Loss for the financial year
c) Cash Flow statement (not mandatory for small
companies, OPCs & Dormant companies) for the
financial year.
d) Statement of Changes in equity, if applicable
e)Explanatory statement Note annexed to & forming
part of Financial statements.
23
Changes
 The Companies Act, 2013 provides that books of
accounts may be kept in electronic form also.
 Every Company shall now be required to prepare and
keep financial statements, other relevant books,
minutes and registers at its registered office.
 The term Balance Sheet, Profit & Loss Account, has
been define collectively as Financial Statement under
the Act, cash flow statement and statement showing
change in equity (if applicable) of the company also
forms part of the same.
24
Small Company :
• Small Company is not defined under the Companies
act, 1956.
• As per section 2(85) of the Companies Act, 2013, small
company means a company, other than a public
companyi. Paid up share capital does not exceed Rs.50 lakh or
such higher amount as may be prescribed which
shall not be more than Rs. 5 crore or
ii. Turn over as per its last statement of profit and loss
does not exceed Rs. 2 crore or such higher amount
as may be prescribed which shall not be more than
Rs. 20 crore.
25
Small Company (Contd..)
This clause shall not apply to –
a. A holding company or subsidiary company
b. A company registered under section 8 (formation for
charitable objects)
c. A company or body corporate governed by any
special Act.
26
Requirements of Financial Statement
(Sec. 129)
 The FS shall give a true and fair view and comply with
the AS & shall be in the form as provided in Schedule III.
 The FS shall be laid in the AGM within six months form
the end of the financial year.
 The holding company shall in addition, prepare a
Consolidated Financial Statement of the Company along
with its all subsidiaries, associates & joint ventures and
lay before the AGM.
27
Consolidated Financial Statement (CFS)
Neither the Companies Act, 1956 nor AS 21 requires
the Companies to prepare Consolidated Accounts.
At present, Clause 32 of the Listing Agreement
mandates listed Companies to publish its
Consolidated Accounts which is neither required to
be laid before the AGM nor to be filed with ROC.
28
 Under the Companies Act, 2013 where a company has
one or more subsidiaries, it shall, in addition to
financial statements, prepare consolidated financial
statement of the company and laid before the annual
general meeting of the company.
 All subsidiaries, associates and joint ventures will be
covered under CFS.
 Company shall prepared the Consolidated Financial
Statements according to Schedule III of the
Companies Act, 2013 which is in line with revised
schedule VI.
 All Companies including unlisted and private
companies, with subsidiaries will need to prepare CFS.
29
General Instructions for preparation of CFS
 Where a company is required to prepare CFS, the
company will mutatis mutandis follow the
requirements of this Schedule.
 Profit or Loss attributable to ‘minority interest’ and to
owners of the parent in the statement of profit and
loss shall be presented as allocation for the period.
 A company will disclose the list of subsidiaries or
associates or joint ventures, which have not been
consolidated along with the reasons for non
consolidation.
30
Re-opening of accounts on Court’s or Tribunal’s
orders (Sec. 130)
• Re opening of accounts is not provided under the
Companies Act, 1956.
•This new Section provides for provisions relating to reopening or re-casting of the books of accounts of
Company pursuant to order of Court or Tribunal on
application made by CG, any Statutory Authority or any
person concerned if it was found that earlier accounts
were prepared in fraudulent manner or financial
statements are not reliable due to mismanagement of
affairs of the company. The accounts so revised or re-cast
shall be final.
31
Voluntary revision of FS or Board’s report
(Sec. 131)
The directors to prepare revised financial statement or a
revised Board’s report of any of the 3 preceding financial
years only once in a FY, if it appears to them that they did
not comply with the requirement of Section 129 or
Section134 after obtaining approval of the Tribunal.
Tribunal shall take into account the representations if any,
of the CG and of the IT Department.
Such revised financial statement or report shall be done in
conformity with the rules as may be prescribed.
32
 Form 9.2 provided in draft rules requires disclosure of
effect of revision on –
1. Assets
2. Liabilities (including contingent liabilities)
3. Revenue
4. Profit/loss before taxes
5. Net profit after tax/loss
6. Earning per share
7. Dividend
8. Any other item (specify in detail)
33
 The revised account along with board’s report there on is
required to be approved by board and to be placed before
the AGM along with report of the auditors there on.
 However if the original financial statement was audited by
different auditor, than, the revised financials shall
accompanied by the consent letter from the auditor who
reported upon the financial statements sought to be
revised.
 In case such auditor does not agree or the company is
unable to procure the consent letter, reasons for such
different opinion or inability to procure consents shall be
explained.
 Such revised financials are required to be filed with ROC
and in case of listed company with stock exchange.
34
Constitution of National Financial Reporting
Authority (Sec. 132)
This Section provides that the CG may by notification
constitute the NFRA
 to advice on Accounting Standards (AS) & Auditing
Standards(SA),
 to monitor, enforce, compliance and overseeing the
quality of service of associated professionals.
Contd..
35
Constitution of National Financial Reporting
Authority (Sec. 132)
The authority shall have power to investigate the matters
of misconduct committed by any member of ICAI or any
other prescribed profession and pass order which may be
appealed to Appellate Authority to be constituted by CG.
Qualifications, terms and conditions of appointment of
the chairperson and members of the Appellate Authority
have also been provided.
36
CG to prescribe AS (Sec. 133)
This Section provides that the CG may, after
consultation with NFRA, prescribe the Accounting
Standards as recommended by the ICAI for adoption by
companies.
As per Rule 7 of Companies (Account) rules 2014,
Accounting standards prescribed under Companies Act
1956 shall be deemed to be the accounting standards
until accounting standards are notified under Section
133.
37
 A. Following AS are applicable to all companies,





without exception:
AS-1 Disclosure of Accounting Policies
AS-2 Valuation of Inventory
AS-4 Contingencies and Events occuring after Balance
sheet date
AS-5 Net Profit or Loss for the period. Prior period
items and changes in Accounting policies
AS-6 Depreciation Accounting
38
 AS-7 Construction Contracts
 AS-9 Revenue Recognition
 AS-10 Accounting for Fixed Assets
 AS-11 The effects of changes in Foreign exchange Rates
 As-12 Accounting for Government grants
 AS-13 Accounting for Investments
 AS-14 Accounting for Amalgamations
 As-16 Borrowing costs
 AS-18 Related Party Transactions
39
 As-22 Accounting for taxes on Income
 As-24 Discontinuing operations
 As-26 Intangible Assets
40
 B. At present, following AS are applicable to




companies only if, the preparation of consolidated
FS/Interim FS are either mandatory or these
companies voluntary chooses to do so. However, till
the time IND AS are notified, companies required to
prepare consolidated FS would have to follow;
AS- 21ConsolidatedFinancial Statements
As-23 Accounting for investments in Associates
AS-27 Financial Reporting of Interest in Joint Ventures
AS-25 Interim Financial Reporting
41
 Following standards are not applicable to SMCs in its





entirety:
AS-3 Cash Flow
AS-17 Segment Reporting
SMC as per Accounting Standard Rules 2006 are the
companies:
a. Whose equity or debt securities are not listed on any
stock exchange or are not in process of listing.
b. which is not a bank, financial institution or an
insurance company.
42
 c. Whose turnover excluding other income does not
exceed Rs.50 Crore in immidiately preceding previous
year.
 d. which does not have borrowings including public
deposits in excess of Rs.10 Crore
 e. which is not a holding or subsidiary of a company
which is not SMC
43
 D. Following Standards are applicable to SMCs with
certain exemptions
Accounting Standard
Exemption paragraphs
AS-15 Employee Benefits
Para 11 t0 16
Para 46 and 130
Para 50 to 116
Para 117 to 123
Para 129 to 131
AS-19 Leases
Para 22©, (e) and (f)
Para 25(a),(b) and (e)
Para 37(a) and (f)
Para 46(b) and (d)
AS -20 Earnings per share Disclosure of Diluted
earning
44
 D. Following Standards are applicable to SMCs with
certain exemptions
Accounting Standard
Exemption paragraphs
AS-28 Impairment of
Asset
Certain provisions
relating to measurement
of `Value in Use’ and
para121(g)
AS-29 Provisions,
Para 66and 67
Contingent Liabilities and
Contingent Assets
45
 Though MCA has issued 35 Ind AS in February 2011 yet
they are not notified.
 Upon its’ Notification, companies would be required
to follow Ind AS issued by MCA.
46
BOD shall approve FS (Sec. 134)
This Section provides that the Financial Statements,
including CFS should be approved by the BOD before
they are signed and submitted to auditor. The Board’s
Report & Auditor’s Report are to be attached with every
FS before it is issued.
47
 Board Report (Sec. 134)
 Financial Statement shall be signed by at least the chairperson if authorized by
board or by at least 2 directors one of whom shall be managing director and
CEO if he is a director in the company and CFO and Company Secretary where
ever they are appointed. In case of OPC only by one director.
 Board report to contain following information:•
Extract of the Annual Return as prescribed under section 92 in Form MGT
-9
•
No. of Board Meeting held.
•
Director’s Responsibility Statement.
•
Declaration by Independent Directors regarding their appointment
•
Co.s policy on Director’s appt. & remuneration if required to constitute
Nomination and Remuneration Committee.
48
•
Explanation/Comments by the Board on every qualification,
reservation or adverse remark or disclaimer made by Auditor in his
Audit Report and
Company Secretary in his Secretarial Audit
Report
•
Particulars of loans, guarantees or investments under section 186.
•
Particulars of contracts or arrangements with related parties in
Form AOC - 2 pursuant to Rule 8(2)
•
The state of the company’ s affairs.
•
The amounts, if any, which it propose to carry to any reserves.
•
The amount, if any, which it recommends should be paid by way of
dividend.
49
• Material changes & commitments affecting company’s
financial position between previous year and current
year & date of the report.
• Statement indicating development and implementation
of risk management policy
• Details of policy developed and implemented on CSR
applicable to companies having net worth of Rs. 500
crore or more or turnover of Rs. 1000 crore or more or
net profit of Rs. 5 crore or more during the financial
year.
• For listed companies
& prescribed companies , a
statement of manner of annual evaluation of its own
performance, its committees and individual directors.
50
 Directors Responsibility Statement to contain following
additional statement:• Laying down of Internal Financial Control in case of listed
company.
• Devising proper system to ensure compliance of all applicable
laws.
 Company no longer required to disclose the following in the
Directors Report:• Reasons for non-completion of buy back within time period
specified in the Bill.
• Details of employees in receipt of remuneration not less than
the prescribed rate of remuneration.
51
 Section 136 of the Act provides for circulation of
financial statements and in case of listed companies
preparation and manner of circulation of abridged
financial statements.
52
Copy of FS to be filed with Registrar
(Sec. 137)
•This Section provides that a copy of FS, auditor’s report
etc shall be filled with the Registrar within 30 days.
•In case a company does not hold an AGM or the AGM
has been adjourned in any year, a statement of facts and
reasons along with FS and attachment has to be filed
with the Registrar.
•In case the accounts are not adopted at AGM or
adjourned meeting, the unadopted accounts shall be
filed with ROC who shall take them in his records as
provisional till final accounts are filed.
53
Copy of FS to be filed with Registrar (Contd..)
• One Person Co. (OPC) is required to file the FS with
the Registrar within 180 days from the date of meeting.
• Now every company at the time of filling their FS with
registrar shall also attach the accounts of its
subsidiaries which have been incorporated o/s India.
54
Depreciation
55
Companies Act, 1956
Companies Act, 2013
As per Section 350 of the Act the
amount of depreciation to be
deducted in pursuance of clause (k)
of sub-section (4) of section 349 shall
be the amount of depreciation on
assets as shown by the books of the
company at the end of the financial
year expiring at the commencement
of this Act or immediately thereafter
and at the end of each subsequent
financial year at the rate specified in
Schedule XIV:
Section 123(2) provides that the
depreciation shall be calculated
as per the provisions of schedule
II.
Schedule II introduced:
•
Depreciation to be based on
useful life & residual value
•
Useful lives of various tangible
assets prescribed
•
Residual Value not more than 5%
of the original cost of the asset
•
From the date Schedule II
becomes
effective
carrying
amount of the asset shall be
depreciated over the remaining
useful life of the asset
56
SCHEDULE II (See section 123)
USEFUL LIVES TO COMPUTE
DEPRECIATION
 PART ‘A’
1. Depreciation is the systematic allocation of the
depreciable amount of an asset over its useful life. The
depreciable amount of an asset is the cost of an asset or
other amount substituted for cost, less its residual value.
“The useful life of an asset” is the period over which an
asset is expected to be available for use by an entity, or
the number of production or similar units expected to
be obtained from the asset by the entity.
57
USEFUL LIVES TO COMPUTE DEPRECIATION (Contd.)
2. For the purpose of this Schedule, the term depreciation
includes amortisation.
3. Without prejudice to 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.
58
(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.
(iii) For intangible assets, the provisions of the
Accounting Standards mentioned under sub-para (i)
or (ii), as applicable, shall apply.
59
 PART ‘B’
4. The useful life or residual value of any specific
asset, as notified for accounting purposes by a
Regulatory Authority constituted under an Act of
Parliament or by the Central Government shall be
applied in calculating the depreciation to be
provided for such asset irrespective of the
requirements of this Schedule.
60
Part 'C'
Depreciation (Contd.)
• Componentization of assets mandated
Separate capitalization and depreciation of a part of
an asset if its cost is significant to the total cost of the
asset and its estimated life is different from the
remaining asset
• Accounting for replacement costs.
• Significant increase in rate of depreciation of commonly
used assets as compared to Schedule XIV rates under
the 1956 Act
61
Nature of asset - illustrative
The Companies
Act, 2013
Useful Deeme
Life
d rate
The
Compani Increas
es Act,
e
1956
%
change
General Plant and Machinery
other than continuous process
plant
15
6.33%
4.75%
1.58%
33.33%
Continuous process plant
8
11.88%
5.28%
6.60%
124.91%
General furniture and fittings
10
9.50%
6.33%
3.17%
50.08%
Office equipment
5
19.00%
4.75%
14.25% 300.00%
Desktops, laptops, etc.
Electrical Installations and
Equipment
3
31.67%
16.21%
15.46%
95.35%
10
9.50%
4.75%
4.75%
100.00%
• Depreciable amount to be determined after reducing expected residual
value
• Residual value generally not more than 5% of the original cost of the asset
62
Depreciation :
Depreciation on tangible fixed assets based on estimated
useful life
From a Rates regime to Useful Lives
Useful life of an asset is the period over which
the asset is expected to be available for use by
the entity or the number of production or
similar units expected to be obtained from the
asset
63
Depreciation of plant & machinery based on industry
category. Specified industries:
Production and exhibition of
motion picture films (13 years)
Steel (20-25 years)
Glass manufacturing (8-13 years)
Non-ferrous metals (25-40 years)
Mines & quarries (8 years)
Medical & surgical operations (1315 years)
Telecommunication (13-18 years)
Pharmaceuticals and Chemicals
(20 years)
Exploration, production and
refining of oil & gas (8-30 years)
Civil construction (9-20 years)
Generation, transmission and
distribution of power (22-40 years)
Salt works (15 years)
64
Notes —
1. "Factory buildings" does not include offices, godowns, staff
quarters.
2. Where, during any financial year, any addition has been made to
any asset, or where any asset has been sold, discarded,
demolished or destroyed, the depreciation on such assets shall be
calculated on a pro rata basis from the date of such addition or, as
the case may be, up to the date on which such asset has been sold,
discarded, demolished or destroyed.
3. The following information shall also be disclosed in the accounts,
namely:—
(i) depreciation methods used; and
(ii) the useful lives of the assets for computing depreciation, if they
are different from the life specified in the Schedule.
4. Useful life specified in Part C of the Schedule is for whole of the
asset. 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.
65
Notes (contd.)—
5. Depreciable amount is the cost of an asset, or other amount
substituted for cost, less its residual value. Ordinarily, the
residual value of an asset is often insignificant but it
should generally be not more than 5% of the original cost
of the asset.
6. The useful lives of assets working on shift basis have been
specified in the Schedule based on their single shift
working. Except for assets in respect of which no extra shift
depreciation is permitted (indicated by NESD in Part C
above), if an asset is used for any time during the year for
double shift, the depreciation will increase by 50% for that
period and in case of the triple shift the depreciation shall
be calculated on the basis of 100% for that period.
66
Notes (contd.) —
7. From the date this Schedule comes into effect, the
carrying amount of the asset as on that date—
(a) shall be depreciated over the remaining useful life
of the asset as per this Schedule;
(b) after retaining the residual value, shall be
recognised in the opening balance of retained
earnings where the remaining useful life of an asset is
nil.
8. ‘‘Continuous process plant’’ means a plant which is
required and designed to operate for twenty-four
hours a day.
67
 Some examples :
1. Where the useful life of assets still persist as
compared to the useful life of asset provided under
schedule II.
2. Useful life remains.xlsx
3. Where useful life of asset is over as compared to
useful life provided under schedule II.
4. Useful life over.xlsx
68
Poser
 CA 1956 had Schedule XIV wherein SLM Rates and WDV
rates were prescribed for different class of assets and
companies had an option to provide depreciation and any
of these rates.
 Now CA 2013 has provided that depreciation has to be
provided as per Schedule II of the Act wherein useful life of
different class of assets have been provided and
depreciation has to be provided accordingly till 95% of the
value of asset is written of.
 Does this mean that depreciation has to be written off
according to SLM only or still the companies have option to
provide depreciation based upon other methods ?
69
THANK YOU
70

D.P. Shah – D. Shah & Associates 1

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