Schedule II of Companies Act, 2013
Schedule II of Companies Act, 2013
Section 123 of the Companies Act, 2013 requires every company to provide depreciation in accordance with the provisions of Schedule II. This section has come into force with effect from 1st April 2014 implying that the Companies will be required to compute depreciation in their financial statements for the year closing on 31st March 2015 in accordance with Schedule II.
In Companies Act, 1956, Section 205, required every company to provide for depreciation in accordance with Schedule XIV.
A. Major Changes:
- In old Act, SLM and WDV rates were prescribed, while in new Act, useful life of assets have been prescribed.
- In old Act, assets were grouped according to the rates prescribed, in new Act, the assets have been grouped according to its nature and industry.
- In old Act, there was no mention in case a company wishes to apply higher or lower rates than given in the Schedule. However, the Accounting Standard has stated that company may choose to apply higher rate but it cannot be lower than the rates given in the Act. In new Act, it is given that ‘ordinarily’ the useful life of an asset shall not be different from the useful life given in the schedule. Originally, the word used was ‘longer’ which has been replaced with the word ‘different’. It implies that the useful life may be longer or shorter than given in the Act. In case, the useful life adopted is different from the useful life given in the Act, a justification is to be given which shall also be duly supported by technical advice. Originally, only justification was to be disclosed, but it has been amended that it ought to be supported by technical advice.
- As regards residual value, there was no mention in schedule of the old Act. But, if we compare the rates given for WDV and SLM we can derive that those rates have been worked out taking 5% as the residual value. Section 205(2)(b) of the old Act also give a clue that a company was required to write off 95% of the original cost on the expiry of the specified period. In the new Act also, it is provided that residual value shall not be more than 5% of the original cost. In case, a company takes lesser or more than 5% as residual value, it has to justify with technical support. It implies that a company may take residual value other than 5% if it can be justified.
- New Schedule II also defines depreciation, depreciable amount and useful life as under:
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.
It does not define the term ‘residual value’. AS-6 on Depreciation in para 10 states as under:
“Determination of residual value of an asset is normally a difficult matter. If such value is considered as insignificant, it is normally regarded as nil. On the contrary, if the residual value is likely to be significant, it is estimated at the time of acquisition/installation, or at the time of subsequent revaluation of the asset. One of the bases for determining the residual value would be the realisable value of similar assets which have reached the end of their useful lives and have operated under conditions similar to those in which the asset will be used.”
B. Impact of Change
With the change in concept, in the first of year of change i.e. the current year each company will have to work out the useful life of each of the asset, whether it is more or less as given in Schedule II, the remaining of the useful life, carrying amount as on the last day of the previous year. The rate of the depreciation to be applied to each of the assets depending upon its remaining useful life will be required to be worked out.
C. Comparison
In the table below, useful life based on rates given in Schedule XIV of the 1956 Act and rates based on useful life given in Schedule II of the 2013 Act, has been given in respect of only those items where there is variation.
| COMPANY ACT 1956 | COMPANY ACT 2013 | |||||
| Useful Life | WDV | SLM | Useful Life | WDV | SLM | |
| YEARS | YEARS | |||||
| I. BUILDINGS [NESD] | ||||||
| (a) Building (other than Factory Building) | ||||||
| Non-RCC Frame Structure | 58 | 5% | 1.63% | 30 | 9.50% | 3.17% |
| (b) Fence, Wells, Tube wells | 28 | 10% | 3.34% | 5 | 45.07% | 19.00% |
| (c) Others (including Temporary Structures) | 1 | 100% | 100% | 3 | 63.16% | 31.67% |
| II. Roads [NESD] | ||||||
| (a) Carpeted Roads | ||||||
| (i) Carpeted Roads- RCC | 28 | 10% | 3.34% | 10 | 25.89% | 9.50% |
| (i) Carpeted Roads- other than RCC | 28 | 10% | 3.34% | 5 | 45.07% | 19.00% |
| (b) Other than Carpeted Roads | 28 | 10% | 3.34% | 3 | 63.16% | 31.67% |
| III. Plant and Machinery | ||||||
| (i) General Rate applicable0 | ||||||
| (a) Plant and Machinery other than continuous process plant | 20 | 13.91% | 4.75% | 15 | 18.10% | 6.33% |
| (b) Continuous process plant for which no special rate has been prescribed [NESD] | 18 | 15.33% | 5.28% | 25 | 11.29% | 3.80% |
| (ii) Special Plant and Machinery | ||||||
| (a) Used in Telecomunication | ||||||
| 1. Towers | 20 | 13.91% | 4.75% | 18 | 15.33% | 5.28% |
| 2. Telecom Transceivers, switching centres, transmission and other network equipments | 20 | 13.91% | 4.75% | 13 | 20.58% | 7.31% |
| 3. Telecom – Ducts, Cables and optical fibres | 20 | 13.91% | 4.75% | 18 | 15.33% | 5.28% |
| 4. Satellites | 20 | 13.91% | 4.75% | 18 | 15.33% | 5.28% |
| (b) Used in exploration, production and refining oil and gas [NESD] | ||||||
| 1. Refineries | 20 | 13.91% | 4.75% | 25 | 11.29% | 3.80% |
| 2. Oil and gas assets (including wells) , processing plant and facilities | 20 | 13.91% | 4.75% | 25 | 11.29% | 3.80% |
| 3. Petrochemical Plant | 20 | 13.91% | 4.75% | 25 | 11.29% | 3.80% |
| 4. Storage tanks and related equipment | 20 | 13.91% | 4.75% | 25 | 11.29% | 3.80% |
| 5.Pipeline | 20 | 13.91% | 4.75% | 30 | 9.50% | 3.17% |
| 6. Drilling Rig | 20 | 13.91% | 4.75% | 30 | 9.50% | 3.17% |
| 7. Field operations (above ground) Portable boilers, drilling tools, well-head tanks etc. | 20 | 13.91% | 4.75% | 8 | 31.23% | 11.88% |
| 8. Loggers | 20 | 13.91% | 4.75% | 8 | 31.23% | 11.88% |
| (c) Used in generation, transmission and distribution of power [NESD] | ||||||
| 1. Thermal/ Gas/ Combined Cycle Power Generation Plant | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 2. Hydro Power Generation Plant | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 3. Nuclear Power Generation Plant | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 4. Transmission lines, cables and other network assets | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 5. Wind Power Generation Plant | 20 | 13.91% | 4.75% | 22 | 12.73% | 4.32% |
| 6. Electric Distribution Plant | 20 | 13.91% | 4.75% | 35 | 8.20% | 2.71% |
| 7. Gas Storage and Distribution Plant | 20 | 13.91% | 4.75% | 30 | 9.50% | 3.17% |
| 8. Water Distribution Plant including pipelines | 20 | 13.91% | 4.75% | 30 | 9.50% | 3.17% |
| (d) Used in Manufacture of steel | ||||||
| 1. Basic oxygen Furnace Converter | 20 | 13.91% | 4.75% | 25 | 11.29% | 3.80% |
| (e) Used in manufacture of non-ferrous metals | ||||||
| 1. Metal pot line [NESD] | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 2. Bauxite crushing and grinding section [NESD] | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 3. Digester Section [NESD] | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 4. Turbine [NESD] | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 5. Equipments for Calcination [NESD] | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 6. Copper Smelter [NESD] | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 7. Roll Grinder | 20 | 13.91% | 4.75% | 40 | 7.22% | 2.38% |
| 8. Soaking Pit | 20 | 13.91% | 4.75% | 30 | 9.50% | 3.17% |
| 9. Annealing Furnace | 20 | 13.91% | 4.75% | 30 | 9.50% | 3.17% |
| 10. Rolling Mills | 20 | 13.91% | 4.75% | 30 | 9.50% | 3.17% |
| 11. Equipments for Scalping, Slitting , etc. [NESD] | 20 | 13.91% | 4.75% | 30 | 9.50% | 3.17% |
| 12. Surface Miner, Ripper Dozer, etc., used in mines | 20 | 13.91% | 4.75% | 25 | 11.29% | 3.80% |
| 13. Copper refining plant [NESD] | 20 | 13.91% | 4.75% | 25 | 11.29% | 3.80% |
| (f) used in medical and surgical operations [NESD] | ||||||
| 1. Electrical Machinery, X-ray and electrotherapeutic apparatus and accessories thereto, medical, diagnostic equipments, namely, Cat-scan, Ultrasound Machines, ECG Monitors, etc. | 13 | 20% | 7.07% | 13 | 20.58% | 7.31% |
| 2. Other Equipments | 20 | 13.91% | 4.75% | 15 | 18.10% | 6.33% |
| (g) used in civil construction | ||||||
| 1. Concreting, Crushing, Piling Equipments and Road Making Equipments | 20 | 13.91% | 4.75% | 12 | 22.09% | 7.92% |
| 2. Heavy Lift Equipments— | ||||||
| Cranes with capacity of more than 100 tons | 20 | 13.91% | 4.75% | 20 | 13.91% | 4.75% |
| Cranes with capacity of less than 100 tons | 20 | 13.91% | 4.75% | 15 | 18.10% | 6.33% |
| 3. Transmission line, Tunneling Equipments [NESD] | 20 | 13.91% | 4.75% | 10 | 25.89% | 9.50% |
| 4. Earth-moving equipments | 8 | 30% | 11.31% | 9 | 28.31% | 10.56% |
| 5. Others including Material Handling /Pipeline/Welding Equipments [NESD] | 20 | 13.91% | 4.75% | 12 | 22.09% | 7.92% |
| (h) used in salt works [NESD] | 1 | 100% | 100% | 15 | 18.10% | 6.33% |
| IV. Furniture and Fixtures | ||||||
| (i) General Furniture and fittings | 15 | 18.10% | 6.33% | 10 | 25.89% | 9.50% |
| (ii) Furniture and fittings used in hotels, restaurants and boarding houses, schools, colleges and other educational institutions, libraries; welfare centres; meeting halls, cinema houses; theatres and circuses; and furniture and fittings let out on hire for use on the occasion of marriages and similar functions. | 10 | 25.88% | 9.50% | 8 | 31.23% | 11.88% |
| V. Motor Vehicles [NESD] | ||||||
| Electrically operated vehicles including battery powered or fuel cell powered vehicles | 13 | 20% | 7.07% | 8 | 31.23% | 11.88% |
| VI. Ships [NESD] | ||||||
| 1. Ocean going ships | ||||||
| (i) Bulk Carriers and liner vessels | 19 | 14.60% | 5% | 25 | 11.29% | 3.80% |
| (ii) Crude tankers, product carriers and easy chemical carriers with or without conventional tank coatings. | 19 | 14.60% | 5% | 20 | 13.91% | 4.75% |
| (iii) Chemicals and Acid Carriers: | ||||||
| (a) With Stainless steel tanks | 19 | 14.60% | 5% | 25 | 11.29% | 3.80% |
| (b) With other tanks | 19 | 14.60% | 5% | 20 | 13.91% | 4.75% |
| (iv) Liquified gas carriers | 19 | 14.60% | 5% | 30 | 9.50% | 3.17% |
| (v) Conventional large passenger vessels which are used for cruise purpose also | 19 | 14.60% | 5% | 30 | 9.50% | 3.17% |
| (vi) Coastal service ships of all categories | 19 | 14.60% | 5% | 30 | 9.50% | 3.17% |
| (vii) Offshore supply and support vessels | 19 | 14.60% | 5% | 20 | 13.91% | 4.75% |
| (viii) Catamarans and other high speed passenger for ships or boats | 19 | 14.60% | 5% | 20 | 13.91% | 4.75% |
| (ix) Drill ships | 19 | 14.60% | 5% | 25 | 11.29% | 3.80% |
| (x) Hovercrafts | 19 | 14.60% | 5% | 15 | 18.10% | 6.33% |
| (xi) Fishing vessels with wooden hull | 10 | 27.05% | 10% | 10 | 25.89% | 9.50% |
| VII. Aircrafts or Helicopters [NESD] | 17 | 16.26% | 5.60% | 20 | 13.91% | 4.75% |
| VIII. Railways sidings, locomotives, rolling stocks, tramways and railways used by concerns, excluding railway concerns [NESD] | 20 | 13.91% | 4.75% | 15 | 18.10% | 6.33% |
| IX Ropeway structures [NESD] | 8 | 30% | 11.31% | 15 | 18.10% | 6.33% |
| X Office equipment [NESD] | 20 | 13.91% | 4.75% | 5 | 45.07% | 19.00% |
| XI. Computers and data processing units [NESD] | ||||||
| (i) Servers and networks | 6 | 40% | 16.21% | 6 | 39.30% | 15.83% |
| (ii) End user devices, such as, desktops, laptops, etc | 6 | 40% | 16.21% | 3 | 63.16% | 31.67% |
| XII. Laboratory equipment [NESD] | ||||||
| (i) General laboratory equipment | 20 | 13.91% | 4.75% | 10 | 25.89% | 9.50% |
| (ii) Laboratory equipments used in educational institutions | 20 | 13.91% | 4.75% | 5 | 45.07% | 19.00% |
| XIII. Electric Installation and equipment [NESD] | 20 | 13.91% | 4.75% | 10 | 25.89% | 9.50% |
| XIV. Hydraulic works, pipelines and sluices [NESD] | 20 | 13.91% | 4.75% | 15 | 18.10% | 6.33% |
Hope the information will assist you in your Professional endeavors. For query or help, contact: info@caindelhiindia.com or call at 011-233 433 33
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