1Ph. D Research Scholar, Department of Commerce, Osmania University, Hyderabad, TS, India Email: srinivas_yeldi@yahoo.co.in, yeldi.srinivas@gmail.com
2Former Vice-Chancellor, Telangana University, Nizamabad, TS
3Rtd. Professor & Dean, Faculty of Commerce, Osmania University, Hyderabad
Online published on 25 September, 2017.
The concept of Accounting for Depreciation on a component wise valuation basis is a fairly niche concept. There have been significant amendments in the Companies Act pertaining to calculation of depreciation, in the last 3 decades. This has impacted the results of the companies, as the financials undergo a change due to changes in the depreciation accounting. The Companies Amendment Act of 1988 introduced the Schedule XIV with retrospective effect from 02nd April 1987 and prohibited the use of depreciation rates prescribed under the Income Tax Act, 1961. Also, the Companies Act amended in the year 2000 permitted companies to use Straight Line Method (SLM) for determination of Net Profit for computing managerial remuneration by amending the section 350 of the Act. Further, Schedule XIV of the Erstwhile Companies Act 1956 recognizes Straight Line Method (SLM) and Written Down Value (WDV) Method for calculating the Depreciation. Both SLM and WDV Methods have been considered for Depreciation accounting.
However, the Schedule II of the Companies Act, 2013 that deals with depreciation significantly departs from the erstwhile Schedule XIV of the 1956 Act and provides the Useful life of the asset method and introduced the concept of componentization of asset for calculating the depreciation. This method may seem to be relatively new to the Indian Asset Accounting.
However, reference to the same can be found in the Existing Accounting Standard AS-10 on Accounting for Fixed Assets:
"The requirement to depreciate assets based on the useful life as estimated by the management has brought the present Indian GAAP in line with Ind AS. Schedule II useful lives are mere indications and are neither minimum nor maximum thresholds."
Objective of the Study: The present study is a conceptual analysis of Accounting for Depreciation using Componentisation Approach, to identify the practical issues and problems in implementation and differences in approach.
Methodology and Scope: The New Companies Act 2013 came into existence and became a law on 29.08.2013. Section 1 of the Companies Act 2013 came into force with immediate effect on 29.08.2013. The new method of depreciation on the basis of useful life of asset as per Schedule-II of the Companies Act, 2013 has became operational from 1st April, 2014 vide MCA Notification No. S.O. 902(E) dated 26th March, 2014. Schedule-II of the Companies Act, 2013 prescribed the useful life of individual assets for the purpose of depreciation on fixed asset. The requirement under the new para 4(a) shall be voluntary in respect of the financial year commencing on or after 1st April 2014 and shall be mandatory in respect of the financial year commencing on or after 1st April 2015. Also, the transitional provisions will be applicable for the accounting periods beginning or after April 1, 2016. Hence, the financials shall be prepared as per Schedule II of the Companies Act 2013. Since, it is the first year and hence no data shall be available as on 31.12.2016 for analysis. However, this study is a conceptual analysis and review of technical and practical aspects of the newly-introduced concepts with the help of case studies and illustrations.
