Depreciation Rate Chart as per Companies Act 2013 with Related Law

Depreciation Rate Chart as per Companies Act 2013 with Related Law

Depreciation Rate Chart as per Companies Act 2013 with Related Law: The depreciation rates under Companies Act, 2013 under Written Down Value (WDV) Method and Straight Lime method (SLM) along with compiled Changes to Schedule II: Useful Lives to Compute Depreciation as per section 123 of Companies Act,2013 are discussed in this article.

Depreciation Calculator for the Companies Act 2013

Straight Line Method (SLM)

One of the simplest methods for calculating depreciation as per the Companies Act is the Straight Line Method or SLM. In this method, the total depreciable amount is allocated evenly every year over the asset’s useful life.

Written Down Value Method (WDV)

It is also popularly regarded as the reducing balance method or declining balance method of calculating depreciation as per the Companies Act. In this method, we charge the depreciation rate on the reducing balance of the asset.

For assets that existed on April 1, 2014, the date of acquisition is taken into account, and the balance sheet worth is depreciated over the remaining usable economic life of the asset.

Suppose the remaining useful life of an asset is zero or nil. In that case, the amount over and above residual value may be recognised in the opening balance of retained earnings or maybe accounted off to the Profit and Loss account.

If a firm implements the Written Down Value (WDV) method of accounting, it must approximate a new percentage of depreciation to depreciate the valuable asset throughout its expected useful life, which is expressed as –

R= 100 x {1 – (s/c) ^1/n}

In which –

  1. R is the Depreciation Rate in %;
  2. n is the Remaining useful life of the asset in years;
  3. s is the Scrap value at the end of the useful life of the asset;
  4. c is the cost of the asset/Written down value of the asset.

Note: Upon transition to Schedule II, in the case of existing assets, there will be a different remaining useful life for each asset as the company may have different depreciation rates for individual assets (even within the same class).

Schedule II Useful Lives to Compute Depreciation

Part ‘A’

  1. The depreciation system is the systematic allocation of an asset for its useful life for the depreciable amount. The useful life of any asset is the time period over or in which an asset is expected to be available for its use by an entity, or else some number of productions of the similar units are expected to be obtained from the mentioned asset by the entity. The depreciable amount or cost of an asset is actually the cost of an asset or other amount substituted for cost, reduced by its residual value.
  2. For this Schedule, the term depreciation includes amortisation.
  3. Without preconception to the preceding provisions of paragraph 1, —
    1. The useful life of a financial asset will not typically fluctuate from the useful life indicated in Part C, and the residual value of an asset will not surpass 5% of the individual item’s original or actual cost:

If a firm utilises a useful life that differs significantly from what has indicated in Part C or a residual value that deviates from the limit formulated above, the financial statements will mention such difference and justify this behalf duly supported by technical advice.

In the case of intangible assets, the relevant Indian Accounting Standards (Ind AS) will be applied. Where a company is not needed to comply with the Ind AS (Indian Accounting Standards), it will be complied with the relevant Accounting Standards under Companies (Accounting Standards) Rules of 2006, except for the case of intangible assets (Toll Roads) as created under ‘Build, Own, Operate and Transfer’, ‘Build, Operate and Transfer’, or any other type of public-private partnership route for road-related projects. The amortisation for such cases may be done as discussed below —

Mode of Amortisation

Amortisation Rate = Amortisation Amount / Cost of the Intangible Assets (A) x 100

Amortisation Amount = Cost of the Intangible Assets (A) x Actual Revenue for the Year (B) / Projected Revenue from the Intangible Asset (till the end of the concession period) (C)

Where –

  1. Cost of the Intangible Assets (A) is the cost incurred by the company following the accounting standards;
  2. Actual Revenue for the year (B) is the Actual revenue (Toll Charges) received during the relevant accounting year;
  3. Projected Revenue from the Intangible Asset (C) is the total revenue (projected) from the Intangible Assets as subject to the project lender at the moment of financial closure or agreement.

Note: The amortisation amount or rate should ensure that the entire cost of the intangible asset is amortised over and in the concession period.

Revenue will be verified at the end of each budget year, and estimated revenue shall be efficiently adjusted to reflect such changes, if any, in the estimates leading to the collection at the end of the concession period.

Example

Cost of creation of Intangible Assets Rs. 500/- Crores
The total period of Agreement 20 Years
Time used for the creation of Intangible Assets 2 Years
Intangible Assets to be amortised in 18 Years

If we assume that the Total revenue to be generated out of the Intangible Assets over the period would be Rs. 600 Crores, in the following way –

The Year Number Revenue (in Rs. Crores) Remarks
1st Year 5 Actual
 2nd Year 7.5 Estimate *
 3rd Year 10 Estimate *
4th Year 12.5 Estimate *
5th Year 17.5 Estimate *
 6th Year 20 Estimate *
 7th Year 23 Estimate *
 8th Year 27 Estimate *
 9th Year 31 Estimate *
 10th Year 34 Estimate *
 11th Year 38 Estimate *
 12th Year 41 Estimate *
 13th Year 46 Estimate *
 14th Year 50 Estimate *
 15th Year 53 Estimate *
 16th Year 57 Estimate *
 17th Year 60 Estimate *
 18th Year 67.5 Estimate *
Total Revenue: 600

Where ‘*’ will be actual at the end of the relevant financial year.

Based on this, the charge for the first year or Year 1 would be Rs. 4.16 Crores (approximately) (i.e., Rs. 5 Crores/Rs. 600 Crores × Rs. 500 Crores), which would be applicable to the profit and loss account and 0.83% (i.e., Rs. 4.16 Crores/Rs. 500 Crores × 100) is the amortisation rate for the first year or Year 1.

When an organization estimates the amortisation value for the aforementioned Intangible Assets via any means legally permitted by the applicable Accounting Standards, it must immediately report the amount.

Part ‘B’

In this particular circumstance, regardless of the prerequisites in Schedule II, the useful life or residual value of any specific asset, as made aware for accounting purposes by a Regulatory Authority implemented under an Act of Parliament or by the Central Government, will be used to determine the depreciation to be granted for such entity.

Part ‘C’

In this, subject to Parts A and B above, the following are the useful lives of various tangible assets.

Rate Chart for Depreciation as per Schedule II of The Companies Act 2013

Nature of Assets Useful Life (In years) Depreciation Rate
SLM WDV
I. Buildings (NESD)
(a) Building (other than factory buildings) with RCC Structure Frame 60 1.58% 4.87%
(b) Building (other than factory buildings) except RCC Frame Structure 30 3.17% 9.50%
(c) Buildings of factories 30 3.17% 9.50%
(d) Wells, tube wells, fences 5 19.00% 45.07%
(e) Other (including temporary structures, etc.) 3 31.67% 63.16%
II. Bridges, bunkers, culverts, etc. (NESD) 30 3.17% 9.50%
III. Roads (NESD)
(a) Carpeted Roads
(i) Carpeted Roads – RCC 10 9.50% 25.89%
(ii) Carpeted Roads – except for RCC 5 19.00% 45.07%
(b) Non-carpeted roads 3 31.67% 63.16%
IV. Plant and Machinery
(a) General rate applicable to Plant and Machinery is not covered under Special Plant and Machinery
(i) Plant and Machinery other than continuous process plants are not covered under specific industries (NESD) 15 6.33% 18.10%
(ii) continuous process plants for which no special rate has been prescribed under (ii) below (NESD) 8 11.88% 31.23%
(b) Special Plant and Machinery
(i) Plant and Machinery related to the production & exhibition of Motion Picture Films (MPF)
  1. Cinematograph films—Machinery used in production and exhibition of cinematograph films, recording and reproducing equipment, developing machines, printing machines, editing machines, synchronizers and studio lights except for bulbs
13 7.31% 20.58%
  1. Projecting equipment for the exhibition of films
13 7.31% 20.58%
(ii) Plant and Machinery used for glass manufacturing
  1. Plant and Machinery except for direct fire glass melting furnaces —Recuperative and regenerative glass melting furnaces
13 7.31% 20.58%
  1. Plant and Machinery except for direct fire glass melting furnaces —Moulds (NESD)
8 11.88% 31.23%
  1. Float Glass Melting Furnaces (NESD)
10 9.50% 25.89%
(iii) Plant and Machinery used in mines & quarries—Portable underground machinery and earthmoving machinery used in open cast mining (NESD) 8 11.88% 31.23%
(iv) Plant and Machinery used in Telecommunications (NESD)
  1. Towers
18 5.28% 15.33%
  1. Telecom transceivers, switching centres, transmission & other network equipment
13 7.31% 20.58%
  1. Telecom – Ducts, Cables and optical fibre
18 5.28% 15.33%
  1. Satellites
18 5.28% 15.33%
(v) Plant and Machinery used in the exploration, production and refining oil and gas (NESD)
  1. Refineries
25 3.80% 11.29%
  1. Oil and gas assets (include wells), processing plant and facilities
25 3.80% 11.29%
  1. Petrochemical Plant
25 3.80% 11.29%
  1. Storage tanks and related equipment
25 3.80% 11.29%
  1. Pipelines
30 3.17% 9.50%
  1. Drilling Rig
30 3.17% 9.50%
  1. Field operations (above the ground) Portable boilers, drilling tools, well-head tanks, etc.
8 11.88% 31.23%
  1. Loggers
8 11.88% 31.23%
(vi) Plant and Machinery used in the generation, transmission and distribution of power (NESD)
  1. Thermal/ Gas/ Combined Cycle Power Generation Plant
40 2.38% 7.22%
  1. Hydro Power Generation Plant
40 2.38% 7.22%
  1. Nuclear Power Generation Plant
40 2.38% 7.22%
  1. Transmission lines, cables and other network assets
40 2.38% 7.22%
  1. Wind Power Generation Plant
22 4.32% 12.73%
  1. Electric Distribution Plant
35 2.71% 8.20%
  1. Gas Storage and Distribution Plant
30 3.17% 9.50%
  1. Water Distribution Plant including pipelines
30 3.17% 9.50%
(vii) Plant and Machinery used in the manufacturing of steel
  1. Sinter Plant
20 4.75% 13.91%
  1. Blast Furnace
20 4.75% 13.91%
  1. Coke Ovens
20 4.75% 13.91%
  1. Rolling mill in steel plant
20 4.75% 13.91%
  1. Basic oxygen Furnace Converter
25 3.80% 11.29%
(viii) Plant and Machinery used in the manufacturing of non-ferrous metals
  1. Metal pot line (NESD)
40 2.38% 7.22%
  1. Bauxite crushing and grinding section (NESD)
40 2.38% 7.22%
  1. Digester Section (NESD)
40 2.38% 7.22%
  1. Turbine (NESD)
40 2.38% 7.22%
  1. Equipment for Calcination (NESD)
40 2.38% 7.22%
  1. Copper Smelter (NESD)
40 2.38% 7.22%
  1. Roll Grinder
40 2.38% 7.22%
  1. Soaking Pit
30 3.17% 9.50%
  1. Annealing Furnace
30 3.17% 9.50%
  1. Rolling Mills
30 3.17% 9.50%
  1. Equipment for Scalping, Slitting, etc. (NESD)
30 3.17% 9.50%
  1. Ripper Dozer, Surface Miner, etc., used in mines
25 3.80% 11.29%
  1. Copper refining plant (NESD)
25 3.80% 11.29%
(ix) Plant and Machinery used for medical and surgical operations (NESD)
  1. Electrical Machinery, X-ray, electrotherapeutic apparatus and accessories to it, medical, diagnostic equipment, namely, Cat-scan, Ultrasound Machines, ECG Monitors, etc.
13 7.31% 20.58%
  1. Other Equipment.
15 6.33% 18.10%
(x) Plant and Machinery used in manufacturing pharmaceuticals and chemicals (NESD)
  1. Reactors
20 4.75% 13.91%
  1. Distillation Columns
20 4.75% 13.91%
  1. Drying equipment/Centrifuges and Decanters
20 4.75% 13.91%
  1. Vessel/storage tanks
20 4.75% 13.91%
(xi) Plant and Machinery used in civil construction
  1. Concreting, Crushing, Piling Equipment and Road Making Equipment
12 7.92% 22.09%
  1. Heavy Lift Equipment—
–        Cranes with capacity of more than 100 tons 20 4.75% 13.91%
–        Cranes with capacity of less than 100 tons 15 6.33% 18.10%
  1. Transmission line, Tunnelling Equipment (NESD)
10 9.50% 25.89%
  1. Earth-moving equipment
9 10.56% 28.31%
  1. Others including Material Handling /Pipeline/Welding Equipment (NESD)
12 7.92% 22.09%
(xii) Plant and Machinery used for salt works (NESD) 15 6.33% 18.10%
V. Furniture and fittings (NESD)
(a) General furniture and fittings 10 9.50% 25.89%
(b) Furniture and fittings used in schools, colleges and other educational institutions, libraries; welfare centres; meeting halls, hotels, restaurants and boarding houses, cinema houses; theatres and circuses; and furniture and fittings let out on hire for use on the occasion of marriages and other such functions. 8 11.88% 31.23%
VI. Motor Vehicles (NESD)
(a) Motor cycles, scooters, mopeds, etc. 10 9.50% 25.89%
(b) Motor buses, motor cars, motor taxies and motor lorries used in a business of running them on hire 6 15.83% 39.30%
(c) Motor buses, motor cars and motor lorries other than those used in a business of running them on hire 8 11.88% 31.23%
(d) Motor tractors, harvesting combines and heavy vehicles 8 11.88% 31.23%
(e) Electrically operated vehicles including the battery powered or fuel cell powered vehicles 8 11.88% 31.23%
VII. Ships (NESD)
(a) Ocean-going ships
(i) Bulk Carriers & liner vessels 25 3.80% 11.29%
(ii) Crude tankers, product carriers & easy chemical carriers with or without conventional tank coatings. 20 4.75% 13.91%
(iii) Chemicals and Acid Carriers
  1. With Stainless steel tanks
25 3.80% 11.29%
  1. With other tanks
20 4.75% 13.91%
(iv) Liquified gas carriers 30 3.17% 9.50%
(v) Conventional large passenger vessels that are used for cruise purpose also 30 3.17% 9.50%
(vi) Coastal service ships of all categories 30 3.17% 9.50%
(vii) Offshore supply and support vessels 20 4.75% 13.91%
(viii) Catamarans and other high-speed passenger boats or ships 20 4.75% 13.91%
(ix) Hovercrafts 15 6.33% 18.10%
(x) Drill ships 25 3.80% 11.29%
(xi) Fishing vessels with wooden hulls 10 9.50% 25.89%
(xii) Dredgers, barges, tugs, survey launches and other similar ships used mainly for dredging purposes 14 6.79% 19.26%
(b) Vessels ordinarily operating on inland waters—
(i) Speed boats 13 7.31% 20.58%
(ii) Other vessels 28 3.39% 10.15%
VIII. Aircraft or Helicopters (NESD) 20 4.75% 13.91%
IX. Railway sidings, locomotives, rolling stocks, tramways and railways used by concerns, excluding railway concerns (NESD) 15 6.33% 18.10%
X. Ropeway structures (NESD) 15 6.33% 18.10%
XI. Office equipment (NESD) 5 19.00% 45.07%
XII. Computers and data processing units (NESD)
(a) Servers and networks 6 15.83% 39.30%
(b) End-user devices, such as desktops, laptops, etc. 3 31.67% 63.16%
XIII. Laboratory equipment (NESD)
(a) General laboratory equipment 10 9.50% 25.89%
(b) Laboratory equipment used in educational institutions 5 19.00% 45.07%
XIV. Electrical Installations and Equipment (NESD) 10 9.50% 25.89%
XV. Hydraulic works, pipelines and sluices (NESD) 15 6.33% 18.10%

Some Significant Points

  1. “Factory buildings” does not include the offices, godowns and staff quarters.
  2. Where, during any financial year, an addition has been made to any asset, or if where any asset has been sold, demolished, destroyed, or discarded, the depreciation on such assets will be calculated on a pro-rata basis from the date of such type of addition or, as the scenario may be, up to the date on which such kind of asset has been sold, demolished, destroyed, or discarded.
  3. The following information will also be disclosed in the accounts, that include –
    1. Depreciation methods used; and
    2. The useful lives of the assets for calculating depreciation if they do not match with the useful life specified in Schedule II.
  4. Useful life as specified in Part C of Schedule II is for the entire asset. Where the cost of a part of the asset is significant to the total cost of the asset and the useful life of that part is different from the actual useful life of the remaining asset, the useful life of that significant part will be determined separately. The requirement is under subparagraph 4.1. shall be voluntary regarding the financial year commencing on or after April 1, 2014, and mandatory for financial statements regarding financial years beginning on or after April 1, 2015.
  5. The useful lives of assets that work on a shift basis are specified in Schedule II based on their single shift working. Leaving 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 a double shift, the depreciation will increase by 50% for that time period. In the case of the triple shift, the depreciation shall be calculated based on 100% for that period.
  6. On the date at which this Schedule comes into effect, the carrying amount of the asset as on that particular date –
    1. after retaining the residual value (that can be recognised) in the opening balance of the retained earnings where the remaining useful life of an asset is zero or nil; and
    2. will be depreciated over the remaining useful life of the asset as per Schedule II.
    3. “Continuous process plant” is a plant that is needed and designed to operate for 24 hours a day.

 

 

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