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
• Schedule II: Useful Lives to Compute Depreciation
• Rate Chart for Depreciation as per Schedule II of The Companies Act 2013
• Some Significant Points

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)
			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%
			Projecting equipment for the exhibition of films	13	7.31%	20.58%
		(ii)	Plant and Machinery used for glass manufacturing
			Plant and Machinery except for direct fire glass melting furnaces —Recuperative and regenerative glass melting furnaces	13	7.31%	20.58%
			Plant and Machinery except for direct fire glass melting furnaces —Moulds (NESD)	8	11.88%	31.23%
			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)
			Towers	18	5.28%	15.33%
			Telecom transceivers, switching centres, transmission & other network equipment	13	7.31%	20.58%
			Telecom – Ducts, Cables and optical fibre	18	5.28%	15.33%
			Satellites	18	5.28%	15.33%
		(v)	Plant and Machinery used in the exploration, production and refining oil and gas (NESD)
			Refineries	25	3.80%	11.29%
			Oil and gas assets (include wells), processing plant and facilities	25	3.80%	11.29%
			Petrochemical Plant	25	3.80%	11.29%
			Storage tanks and related equipment	25	3.80%	11.29%
			Pipelines	30	3.17%	9.50%
			Drilling Rig	30	3.17%	9.50%
			Field operations (above the ground) Portable boilers, drilling tools, well-head tanks, etc.	8	11.88%	31.23%
			Loggers	8	11.88%	31.23%
		(vi)	Plant and Machinery used in the generation, transmission and distribution of power (NESD)
			Thermal/ Gas/ Combined Cycle Power Generation Plant	40	2.38%	7.22%
			Hydro Power Generation Plant	40	2.38%	7.22%
			Nuclear Power Generation Plant	40	2.38%	7.22%
			Transmission lines, cables and other network assets	40	2.38%	7.22%
			Wind Power Generation Plant	22	4.32%	12.73%
			Electric Distribution Plant	35	2.71%	8.20%
			Gas Storage and Distribution Plant	30	3.17%	9.50%
			Water Distribution Plant including pipelines	30	3.17%	9.50%
		(vii)	Plant and Machinery used in the manufacturing of steel
			Sinter Plant	20	4.75%	13.91%
			Blast Furnace	20	4.75%	13.91%
			Coke Ovens	20	4.75%	13.91%
			Rolling mill in steel plant	20	4.75%	13.91%
			Basic oxygen Furnace Converter	25	3.80%	11.29%
		(viii)	Plant and Machinery used in the manufacturing of non-ferrous metals
			Metal pot line (NESD)	40	2.38%	7.22%
			Bauxite crushing and grinding section (NESD)	40	2.38%	7.22%
			Digester Section (NESD)	40	2.38%	7.22%
			Turbine (NESD)	40	2.38%	7.22%
			Equipment for Calcination (NESD)	40	2.38%	7.22%
			Copper Smelter (NESD)	40	2.38%	7.22%
			Roll Grinder	40	2.38%	7.22%
			Soaking Pit	30	3.17%	9.50%
			Annealing Furnace	30	3.17%	9.50%
			Rolling Mills	30	3.17%	9.50%
			Equipment for Scalping, Slitting, etc. (NESD)	30	3.17%	9.50%
			Ripper Dozer, Surface Miner, etc., used in mines	25	3.80%	11.29%
			Copper refining plant (NESD)	25	3.80%	11.29%
		(ix)	Plant and Machinery used for medical and surgical operations (NESD)
			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%
			Other Equipment.	15	6.33%	18.10%
		(x)	Plant and Machinery used in manufacturing pharmaceuticals and chemicals (NESD)
			Reactors	20	4.75%	13.91%
			Distillation Columns	20	4.75%	13.91%
			Drying equipment/Centrifuges and Decanters	20	4.75%	13.91%
			Vessel/storage tanks	20	4.75%	13.91%
		(xi)	Plant and Machinery used in civil construction
			Concreting, Crushing, Piling Equipment and Road Making Equipment	12	7.92%	22.09%
			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%
			Transmission line, Tunnelling Equipment (NESD)	10	9.50%	25.89%
			Earth-moving equipment	9	10.56%	28.31%
			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
			With Stainless steel tanks	25	3.80%	11.29%
			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.