1. DEPRECIATION ACCOUNTING
AS – 6
DEPRECIATION
ACCOUNTING

2. Depreciation is loss of value of an asset
It is a measure of wearing out, consumption or other loss of value of depreciable asset arising from use and passes of time

3. Depreciable Assets
Are expected to be used for more than one accounting period
Have a limited useful life
Are held for use in production of goods & services

4. Applicability of AS-6 Except the followings: Forests, Plantations
Wasting assets, Minerals & Natural Gas
Expenditure on research & development
Goodwill
Live Stock – Cattle, Animal husbandry

5. Calculation of Depreciation
Historical cost or other amount in place of historical cost
Estimate useful life of depreciable assets
Estimated residual/scrap value

6. Cost of Depreciable Asset
Increase/decrease in long-term liability
Price adjustments
Changes in duties
Revaluation of depreciable assets
Other similar reasons

7. Estimated useful life of Depreciable Asset
Pre-determined by legal or contractual limits
Depends upon the number of shifts for which the asset is to be used
Repair & maintenance policy
Other similar reasons

8. Estimated useful life of Depreciable Asset
Technological obsolescence
Innovation/improvements
Legal or other restrictions

9. Estimated residual /scrap value of depreciable asset
It is estimated value of depreciable assets at the end of its useful life

10. Depreciable amount
Historical Cost
Less
Residual Value

11. Method of Depreciation
Straight Line Method (SLM)
Written Down Value Method (WDVM)

12. Selection of appropriate method
Type of assets
Nature of the use of such asset
Circumstances prevailing in the business
A combination of more than one method may be used

13. Change in depreciation method
For compliance of statute
For compliance of accounting standards
For more appropriate presentation of the financial statement

14. Procedure to be followed in case of change in depreciation method
Change of depreciation method should be treated as change in accounting policy and its effect should be quantified and disclosed

15. Change in estimated useful life
Should be allocated over the revised remaining useful life of assets

16. Change in historical cost
Provided prospectively over the remaining useful life of the assets

17. Change in historical cost due to revaluation
Estimate of the remaining useful lives of the such assets

18. Depreciation charge on addition/extension to an existing asset
Addition/extension is an integral part of existing asset
Remaining useful life of the asset

19. Depreciation charge on addition/extension to an existing asset
Addition/extension is not an integral part of existing assets
Estimated useful life of
additional assets
Depreciable asset is disposed of, discarded, demolished or destroyed

20. Disclosure Total cost of each class of assets Total depreciation
Accumulated depreciation
Depreciation method

21. Disclosure
Depreciation rate, useful life of assets, if they are different than the rate specified in governing statute
A change in method of depreciation
Effect of the revaluation

22. Significant differences with IAS/IFRS & US GAAP
AS-6 allows the depreciation on revalued value however, US GAAP prohibits revaluation. IAS-16 allows fair value accounting.

23. Significant differences with IAS/IFRS & US GAAP
Change in depreciation method under AS-6 is treated as a change in accounting policy; whereas IAS-16 and US GAAP it is change in estimate.

24. Depreciation on fixed assets where title not clear
Issues
Depreciation on fixed assets where title not clear
Depreciation on the assets not own by the company
Depreciation on live stock held as fixed assets

25. Income-tax rate Vs. Companies Act Vs. AS-6
Issues
Income-tax rate Vs. Companies Act Vs. AS-6
Depreciation on Addition to Building with Nil WDV
Continuous Vs. Non-continuous process plant
Depreciation in case of electricity company

26. Depreciation on investment property
Issues
Depreciation on investment property
Useful life of asset acquired under amalgamation

27. THANK
YOU
D.S. Rawat, FCA
Partner, Basal & Co.