Companies Act 2013 [Act] has introduced the concept of useful life and depreciation will be calculated based on the useful life of any asset. Section 123 of the act specifies that depreciation shall be provided in accordance with the provisions of Schedule II.
Part C of Schedule II has provided useful life of 15 categories of tangible assets. The useful life mentioned under it is different than that of The Companies Act, 1956. Because of this change companies have to expedite the amortisation of asset at higher rate in order to comply with the useful life specified under the Act. No separate rates are prescribed for extra shift depreciation in Schedule II.
The Schedule XIV to the Companies Act, 1956 prescribes the rates of Straight Line Method [SLM] and Written Down Value[WDV] at which depreciation on various assets need to be provided. In Schedule II to the Act, only useful life is provided, therefore appropriate rate of depreciation as per the appropriate method used by it either SLM or WDV needs to be calculate separately.
In Companies Act, 2013 it is clarified that residual value of the asset can not exceed 5% of original cost of the asset. companies are now required to adopt what is known as the ‘component approach’ to compute depreciation on fixed assets. An assets needs to be split in to its components and based on the useful life of each component the depreciation % will be identified.
