1. Depreciation Provisions under the Companies Act, 2013
Presentation By
CA. Anil Sharma

2. Overview Section 123- Declaration of dividend.
Section 198- computation of net profit for the purpose of calculation of overall maximum managerial remuneration under section 197.
AS 6 - Depreciation accounting.
AS-26- Intangible assets.

3. Section 123- Declaration of dividend
Sec 123. (1) No dividend shall be declared or paid by a company for any financial year except—
(a) out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or out of both; or…

4. Section 123- Declaration of dividend
123 (2): For the purposes of clause (a) of sub-section (1), depreciation shall be provided in accordance with the provisions of Schedule II.

5. Sec 197- Managerial Remuneration
197. (1) The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed eleven per cent of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits.

6. Sec 198- computation of net profits
198. (1) In computing the net profits of a company in any financial year for the purpose of section 197….
(4) In making the computation aforesaid, the following sums shall be deducted, namely…
(k) depreciation to the extent specified in section 123;

7. Schedule II- Useful Lives to Compute Depreciation
Part A-
Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. Useful life is the period over which an asset is expected to be available for use by an entity or the number of production units expected to be obtained from the asset by the entity.
The useful life of an asset shall not be longer than the useful life specified in Part C.
Residual value shall not be more than 5% of the original cost of the asset.

8. Schedule II- Useful Lives to Compute Depreciation
Part A-
Where a company uses a useful life which is different from the limits in Part C, justification for the difference shall be disclosed in its financial statement.

9. Schedule II- Useful Lives to Compute Depreciation
Part A-
For intangible assets, the provision of accounting standards applicable for the time being in force shall apply except for toll roads for which method is prescribed in the Schedule.

10. Schedule II- Useful Lives to Compute Depreciation
Part B-
The useful life and residual value of any specific asset, as notified for accounting purposes by a Regulatory Authority constituted under an Act of Parliament or the Central government shall be applied in calculating the depreciation to be provided for such asset irrespective of the requirement of this Schedule.

11. Schedule II- Useful Lives to Compute Depreciation
Part C-
Nature of asset and their useful life
No extra shift depreciation of certain assets.
For double shift- 50% more for no. of days worked
For triple shift – 100% more

12. Schedule II- Useful Lives to Compute Depreciation
Part C-
From the date this schedule comes into effect, the carrying amount of asset on that date:
shall be depreciated over the remaining useful life of the asset as per this schedule.
after retaining the residual value, shall be recognised in the opening balance of retained earning where the remaining useful life of an asset is nil.

13. AS 6- Depreciation Accounting
Para 3.1Definition of depreciation:
…Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset.
Para 29- Main Principles:
The depreciable amount of a depreciable asset should be allocated on systematic basis to each accounting period during the useful life of the asset.

14. As- 26- Intangible assets
63. The depreciable amount of an intangible asset should be allocated on a systematic basis over the best estimate of its useful life.
There is a rebuttable presumption that the useful life of an intangible asset will not exceed ten years from the date when the asset is available for use.
Amortisation should commence when the asset is available for use.

15. AS-26- Intangible Asset
72. The amortisation method used should reflect the pattern in which the asset's economic benefits are consumed by the enterprise.
If that pattern cannot be determined reliably, the straight-line method should be used.
The amortisation charge for each period should be recognised as an expense unless another Accounting Standard permits or requires it to be included in the carrying amount of another asset.

16. AS-26 Intangible Asset
75. The residual value of an intangible asset should be assumed to be zero unless:
(a) there is a commitment by a third party to purchase the asset at the end of its useful life; or
(b) there is an active market for the asset and:
(i) residual value can be determined by reference to that market; and
(ii) it is probable that such a market will exist at the end of the asset's useful life.

17. THANK YOU Contact me at: 9811320203 anil54@gmail.com
Tuesday, September 18, 2018