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PREPARATION OF FINANCIAL STATEMENTSUNDER COMPANIES ACT 2013

D.P. Shah D. Shah & Associates11Companies Act 1956

Companies Act 2013Schedule XIV to the Act provides the rates at which depreciation is to be provided on different class of assets ( on WDV or SLM basis) Schedule II provides Useful Lives to compute depreciation on various assets and manner of computing depreciationSection 350 providing ascertainment of depreciationSection 123 (2)Companies (Accounting Standard s) Rules 2006

Companies (Account) Rules 2014 inter alia, provides:Manner of keeping books of accounts.Maintenance and inspection of certain financial information by directors. As a transitory provision Accounting Standard rules 2006 continue to be in force till the time new rules are announced. (Rule 7)D.P. Shah D. Shah & Associates66While discussing the new provisions under Companies Act 2013 regarding preparation of Financial statements, we will cover Books of accountsDepreciation Financial statements Consolidated Financial StatementsDirectors Report

D.P. Shah D. Shah & Associates33Key Provisions

Books of Accounts D.P. Shah D. Shah & Associates44

Provisions relating to Accounts Companies Act 1956Companies Act 2013

Section 2(8) provides definition of `book and paper and `book or paper whereas `books of accounts have been defined in Section 209 of the Act. Section 2(12) defines `book and paper and `book or paper whereas `books of accounts have been defined in Section 2(13) of the Act. Section 2(17) defines Financial year. Section 2(41) defines financial year.Section 209 to Section 223 governs provisions relating to accounts . Section 128 to Section 137 governs provisions relating to accountsRevised Schedule VI provides for general instructions for preparation of Balance sheet and Statement of Profit and loss. Schedule III provides general instructions for preparation of Balance sheet and Statement of profit and loss of a CompanyD.P. Shah D. Shah & Associates55Companies Act 1956Companies Act 2013Books Though the Companies Act, 1956 does not define Books of Account , but section 209(1) prescribed the manner of keeping books of account as :1) Every company shall keep at its registered office proper books of account with respect to: (a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place ;(b) all sales and purchases of goods by the company ;(c) the assets and liabilities of the company ; and Section 2 (12) book and paper and book or paper include books of account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or inelectronic form; Section 2(3) defining `Books of accounts as books of account includes records maintained in respect of(i) all sums of money received and expended by a company and matters inrelation to which the receipts and expenditure take place;D.P. Shah D. Shah & Associates77Companies Act 1956Companies Act 2013Books (d) in the case of a company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, such particulars relating to utilization of material or labor or to other items of cost as may be prescribed, if such class of companies is required by the Central Government to include such particulars in the books of account :

(ii) all sales and purchases of goods and services by the company;(iii) the assets and liabilities of the company; and(iv) the items of cost as may be prescribed under section 148 in the case ofa company which belongs to any class of companies specified under that section; yet to be notified.D.P. Shah D. Shah & Associates88Changes:Definition of book and paper and book or paper is modified, so as to include minutes and registers and all documents maintained in electronics form also form part of it.Now `books of account are specifically defined.

D.P. Shah D. Shah & Associates99Companies (Account) Rules 2014 inter alia, provides manner of keeping books of accounts in electronic mode. It reads as;3. Manner of books of account to be kept in electronic mode.- (1) The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to be usable for subsequent reference. (2) The books of account and other relevant books and papers referred to in sub-rule (1) shall be retained completely in the format in which they were originally generated, sent or received, or in a format which shall present accurately the information generated, sent or received and the information contained in the electronic records shall remain complete and unaltered. (3) The information received from branch offices shall not be altered and shall be kept in a manner where it shall depict what was originally received from the branches. D.P. Shah D. Shah & Associates1010D.P. Shah D. Shah & Associates11(4) The information in the electronic record of the document shall be capable of being displayed in a legible form. (5) There shall be a proper system for storage, retrieval, display or printout of the electronic records as the Audit Committee, if any, or the Board may deem appropriate and such records shall not be disposed of or rendered unusable, unless permitted by law:

Provided that the back-up of the books of account and other books and papers of the company maintained in electronic mode, including at a place outside India, if any, shall be kept in servers physically located in India on a periodic basis. 11D.P. Shah D. Shah & Associates12(6) The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement- (a) the name of the service provider; (b) the internet protocol address of service provider; (c) the location of the service provider (wherever applicable); (d) where the books of account and other books and papers are maintained on cloud, such address as provided by the service provider. Explanation.- For the purposes of this rule, the expression "electronic mode" includes electronic form as defined in clause (r) of sub-section (1) of section 2 of Information Technology Act, 2000 (21 of 2000) and also includes an electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000) and books of account shall have the meaning assigned to it under the Act. 12D.P. Shah D. Shah & Associates13 Unlike The Companies Act 1956, now manner of maintenance of books of accounts under electronic mode have prescribed along with filling of the details of the service providers with its IP Address, Location of servers etc. It is also provided that vouchers be maintained in legible form. Audit committee or board is required to evolved a system for storage, retrieval and display of print out of electronic records and disposal there of. In case of accounts being maintained in electronic mode out side India it is required that the back ups there of be kept in servers physically located in India. 13D.P. Shah D. Shah & Associates14 If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both. It may be interesting to note that in view of representations various Chamber of Commerce, Standing committee on finance had made following suggestion on the issue of penalty in case of default:The Committee are of the view that the Ministry may consider a less harsh position on the question of default not committed willfully with respect to books of accounts etc., to be kept by the company, particularly in the context to the existing position in law, which provides defenses for non-willful cases. However the relief prescribed by the Standing Committee on Finance constituted by Parliament has not been addressed by MCA. 14D.P. Shah D. Shah & Associates15 Companies Act 1956, did not permit inspection of books of accounts by any director of the company.

CA 2013 by Section 128 (3) provides that provides that books of accounts etc shall be open for inspection by any of the director of the company and under Rule 4 it provides the manner and conditions of inspection of books of accounts of company and its subsidiary.

15Poser:It has been provided that a Director of the Company can inspect books of accounts of the company.Can a director nominate a professional for carrying out inspection of books of accounts on his behalf ?Can a director of holding company inspect books of accounts of subsidiary ?

D.P. Shah D. Shah & Associates1616Poser3. Maintenance of books of accounts in electronic form has been permitted now in CA 2013, similar provision was not there in CA 1956. Most of the companies were maintaining accounts in SAP/ERP or Tally or such other software. Was it illegal to maintain accounts in electronic form under the regime of CA 1956 ?D.P. Shah D. Shah & Associates1717Poser4. Section 116 (5) inter alia, provides that books of accounts together with vouchers be kept in good order for eight years or till the completion of inspection if any, which ever is later.Now a days every company has a space problem. Whether maintaining vouchers in electronic form i.e. scanned copy, would be sufficient compliance ?D.P. Shah D. Shah & Associates1818Financial StatementD.P. Shah D. Shah & Associates1919Companies Act, 1956Companies Act, 2013Financial Year means, in relation to any body corporate, the period in respect of which any profit and loss account of the body corporate laid before it in annual general meeting is made up, whether that period is a year or not: Financial Year means in relation to any company or body corporate, means the period ending 31st day of the March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on 31st day of march of the following year, in respect where of financial statement of the company or body corporate is made up.D.P. Shah D. Shah & Associates2020Changes1. Definition - now financial year can only be of April to March and only a company or body corporate, which Is a holding company or subsidiary company of a company incorporate outside India and is required to follow a different financial year for consolidation of its accounts out side India, may have different financial year subject to approval of tribunal.2. A transition period of 2 year has been prescribed for companies existing on the commencement of this Act to align their financial year to April-March.D.P. Shah D. Shah & Associates2121The definition of Financial Statement is not provided under the Companies Act, 1956.But the manner of keeping books of account is provided in section 209 of the Companies Act, 1956 D.P. Shah D. Shah & Associates2222MEANING OF FINANCIAL STATEMENT [Sec. 2(40)] In relation to company, includes:a) Balance Sheet at the end of financial year.b) statement of Profit & Loss for the financial yearc) Cash Flow statement (not mandatory for small companies, OPCs & Dormant companies) for the financial year.d) Statement of Changes in equity, if applicablee)Explanatory statement Note annexed to & forming part of Financial statements.D.P. Shah D. Shah & Associates2323ChangesThe Companies Act, 2013 provides that books of accounts may be kept in electronic form also.Every Company shall now be required to prepare and keep financial statements, other relevant books, minutes and registers at its registered office.The term Balance Sheet, Profit & Loss Account, has been define collectively as Financial Statement under the Act, cash flow statement and statement showing change in equity (if applicable) of the company also forms part of the same.

D.P. Shah D. Shah & Associates2424Small Company : Small Company is not defined under the Companies act, 1956.As per section 2(85) of the Companies Act, 2013, small company means a company, other than a public company-Paid up share capital does not exceed Rs.50 lakh or such higher amount as may be prescribed which shall not be more than Rs. 5 crore orTurn over as per its last statement of profit and loss does not exceed Rs. 2 crore or such higher amount as may be prescribed which shall not be more than Rs. 20 crore.D.P. Shah D. Shah & Associates2525Small Company (Contd..)

This clause shall not apply to A holding company or subsidiary companyA company registered under section 8 (formation for charitable objects)A company or body corporate governed by any special Act.

D.P. Shah D. Shah & Associates2626Requirements of Financial Statement (Sec. 129)The FS shall give a true and fair view and comply with the AS & shall be in the form as provided in Schedule III.

The FS shall be laid in the AGM within six months form the end of the financial year.The holding company shall in addition, prepare a Consolidated Financial Statement of the Company along with its all subsidiaries, associates & joint ventures and lay before the AGM.D.P. Shah D. Shah & Associates2727Consolidated Financial Statement (CFS)

Neither the Companies Act, 1956 nor AS 21 requires the Companies to prepare Consolidated Accounts. At present, Clause 32 of the Listing Agreement mandates listed Companies to publish its Consolidated Accounts which is neither required to be laid before the AGM nor to be filed with ROC.D.P. Shah D. Shah & Associates2828Under the Companies Act, 2013 where a company has one or more subsidiaries, it shall, in addition to financial statements, prepare consolidated financial statement of the company and laid before the annual general meeting of the company.All subsidiaries, associates and joint ventures will be covered under CFS.Company shall prepared the Consolidated Financial Statements according to Schedule III of the Companies Act, 2013 which is in line with revised schedule VI.All Companies including unlisted and private companies, with subsidiaries will need to prepare CFS.

D.P. Shah D. Shah & Associates2929General Instructions for preparation of CFS

Where a company is required to prepare CFS, the company will mutatis mutandis follow the requirements of this Schedule.Profit or Loss attributable to minority interest and to owners of the parent in the statement of profit and loss shall be presented as allocation for the period.A company will disclose the list of subsidiaries or associates or joint ventures, which have not been consolidated along with the reasons for non consolidation.

D.P. Shah D. Shah & Associates3030Re-opening of accounts on Courts or Tribunals orders (Sec. 130)D.P. Shah D. Shah & Associates31 Re opening of accounts is not provided under the Companies Act, 1956.This new Section provides for provisions relating to re-opening or re-casting of the books of accounts of Company pursuant to order of Court or Tribunal on application made by CG, any Statutory Authority or any person concerned if it was found that earlier accounts were prepared in fraudulent manner or financial statements are not reliable due to mismanagement of affairs of the company. The accounts so revised or re-cast shall be final.31Voluntary revision of FS or Boards report (Sec. 131)D.P. Shah D. Shah & Associates32The directors to prepare revised financial statement or a revised Boards report of any of the 3 preceding financial years only once in a FY, if it appears to them that they did not comply with the requirement of Section 129 or Section134 after obtaining approval of the Tribunal.

Tribunal shall take into account the representations if any, of the CG and of the IT Department.

Such revised financial statement or report shall be done in conformity with the rules as may be prescribed.32Form 9.2 provided in draft rules requires disclosure of effect of revision on AssetsLiabilities (including contingent liabilities) RevenueProfit/loss before taxesNet profit after tax/lossEarning per shareDividendAny other item (specify in detail)D.P. Shah D. Shah & Associates3333The revised account along with boards report there on is required to be approved by board and to be placed before the AGM along with report of the auditors there on.However if the original financial statement was audited by different auditor, than, the revised financials shall accompanied by the consent letter from the auditor who reported upon the financial statements sought to be revised.In case such auditor does not agree or the company is unable to procure the consent letter, reasons for such different opinion or inability to procure consents shall be explained.Such revised financials are required to be filed with ROC and in case of listed company with stock exchange.D.P. Shah D. Shah & Associates3434Constitution of National Financial Reporting Authority (Sec. 132)D.P. Shah D. Shah & Associates35This Section provides that the CG may by notification constitute the NFRA to advice on Accounting Standards (AS) & Auditing Standards(SA), to monitor, enforce, compliance and overseeing the quality of service of associated professionals. Contd..35Constitution of National Financial Reporting Authority (Sec. 132)D.P. Shah D. Shah & Associates36The authority shall have power to investigate the matters of misconduct committed by any member of ICAI or any other prescribed profession and pass order which may be appealed to Appellate Authority to be constituted by CG.

Qualifications, terms and conditions of appointment of the chairperson and members of the Appellate Authority have also been provided. 36CG to prescribe AS (Sec. 133)D.P. Shah D. Shah & Associates37This Section provides that the CG may, after consultation with NFRA, prescribe the Accounting Standards as recommended by the ICAI for adoption by companies.As per Rule 7 of Companies (Account) rules 2014, Accounting standards prescribed under Companies Act 1956 shall be deemed to be the accounting standards until accounting standards are notified under Section 133.

37A. Following AS are applicable to all companies, without exception:AS-1 Disclosure of Accounting PoliciesAS-2 Valuation of InventoryAS-4 Contingencies and Events occuring after Balance sheet dateAS-5 Net Profit or Loss for the period. Prior period items and changes in Accounting policiesAS-6 Depreciation Accounting

D.P. Shah D. Shah & Associates3838AS-7 Construction ContractsAS-9 Revenue RecognitionAS-10 Accounting for Fixed AssetsAS-11 The effects of changes in Foreign exchange RatesAs-12 Accounting for Government grantsAS-13 Accounting for InvestmentsAS-14 Accounting for AmalgamationsAs-16 Borrowing costsAS-18 Related Party Transactions

D.P. Shah D. Shah & Associates3939As-22 Accounting for taxes on IncomeAs-24 Discontinuing operationsAs-26 Intangible AssetsD.P. Shah D. Shah & Associates4040B. At present, following AS are applicable to companies only if, the preparation of consolidated FS/Interim FS are either mandatory or these companies voluntary chooses to do so. However, till the time IND AS are notified, companies required to prepare consolidated FS would have to follow; AS- 21ConsolidatedFinancial StatementsAs-23 Accounting for investments in Associates AS-27 Financial Reporting of Interest in Joint VenturesAS-25 Interim Financial Reporting

D.P. Shah D. Shah & Associates4141Following standards are not applicable to SMCs in its entirety:AS-3 Cash FlowAS-17 Segment ReportingSMC as per Accounting Standard Rules 2006 are the companies:a. Whose equity or debt securities are not listed on any stock exchange or are not in process of listing.b. which is not a bank, financial institution or an insurance company.

D.P. Shah D. Shah & Associates4242c. Whose turnover excluding other income does not exceed Rs.50 Crore in immidiately preceding previous year.d. which does not have borrowings including public deposits in excess of Rs.10 Croree. which is not a holding or subsidiary of a company which is not SMC D.P. Shah D. Shah & Associates4343D. Following Standards are applicable to SMCs with certain exemptions

D.P. Shah D. Shah & Associates44Accounting StandardExemption paragraphsAS-15 Employee BenefitsPara 11 t0 16Para 46 and 130Para 50 to 116Para 117 to 123Para 129 to 131AS-19 LeasesPara 22, (e) and (f)Para 25(a),(b) and (e)Para 37(a) and (f)Para 46(b) and (d)AS -20 Earnings per shareDisclosure of Diluted earning 44D. Following Standards are applicable to SMCs with certain exemptions

D.P. Shah D. Shah & Associates45Accounting StandardExemption paragraphsAS-28 Impairment of AssetCertain provisions relating to measurement of `Value in Use and para121(g)AS-29 Provisions, Contingent Liabilities and Contingent AssetsPara 66and 67 45Though MCA has issued 35 Ind AS in February 2011 yet they are not notified.Upon its Notification, companies would be required to follow Ind AS issued by MCA.

D.P. Shah D. Shah & Associates4646BOD shall approve FS (Sec. 134)D.P. Shah D. Shah & Associates47This Section provides that the Financial Statements, including CFS should be approved by the BOD before they are signed and submitted to auditor. The Boards Report & Auditors Report are to be attached with every FS before it is issued.47Board Report (Sec. 134) Financial Statement shall be signed by at least the chairperson if authorized by board or by at least 2 directors one of whom shall be managing director and CEO if he is a director in the company and CFO and Company Secretary where ever they are appointed. In case of OPC only by one director.

Board report to contain following information:-Extract of the Annual Return as prescribed under section 92 in Form MGT - 9No. of Board Meeting held.Directors Responsibility Statement.Declaration by Independent Directors regarding their appointmentCo.s policy on Directors appt. & remuneration if required to constitute Nomination and Remuneration Committee.D.P. Shah D. Shah & Associates4848Explanation/Comments by the Board on every qualification, reservation or adverse remark or disclaimer made by Auditor in his Audit Report and Company Secretary in his Secretarial Audit ReportParticulars of loans, guarantees or investments under section 186.Particulars of contracts or arrangements with related parties in Form AOC - 2 pursuant to Rule 8(2)The state of the company s affairs.The amounts, if any, which it propose to carry to any reserves.The amount, if any, which it recommends should be paid by way of dividend.

D.P. Shah D. Shah & Associates4949Material changes & commitments affecting companys financial position between previous year and current year & date of the report.Statement indicating development and implementation of risk management policyDetails of policy developed and implemented on CSR applicable to companies having net worth of Rs. 500 crore or more or turnover of Rs. 1000 crore or more or net profit of Rs. 5 crore or more during the financial year. For listed companies & prescribed companies , a statement of manner of annual evaluation of its own performance, its committees and individual directors.

D.P. Shah D. Shah & Associates5050Directors Responsibility Statement to contain following additional statement:-Laying down of Internal Financial Control in case of listed company.Devising proper system to ensure compliance of all applicable laws.Company no longer required to disclose the following in the Directors Report:-Reasons for non-completion of buy back within time period specified in the Bill.Details of employees in receipt of remuneration not less than the prescribed rate of remuneration.

D.P. Shah D. Shah & Associates5151Section 136 of the Act provides for circulation of financial statements and in case of listed companies preparation and manner of circulation of abridged financial statements. D.P. Shah D. Shah & Associates5252Copy of FS to be filed with Registrar (Sec. 137)D.P. Shah D. Shah & Associates53This Section provides that a copy of FS, auditors report etc shall be filled with the Registrar within 30 days.In case a company does not hold an AGM or the AGM has been adjourned in any year, a statement of facts and reasons along with FS and attachment has to be filed with the Registrar.In case the accounts are not adopted at AGM or adjourned meeting, the unadopted accounts shall be filed with ROC who shall take them in his records as provisional till final accounts are filed.53Copy of FS to be filed with Registrar (Contd..)

One Person Co. (OPC) is required to file the FS with the Registrar within 180 days from the date of meeting.Now every company at the time of filling their FS with registrar shall also attach the accounts of its subsidiaries which have been incorporated o/s India.

D.P. Shah D. Shah & Associates5454DepreciationD.P. Shah D. Shah & Associates5555Companies Act, 1956Companies Act, 2013As per Section 350 of the Act the amount of depreciation to be deducted in pursuance of clause (k) of sub-section (4) of section 349 shall be the amount of depreciation on assets as shown by the books of the company at the end of the financial year expiring at the commencement of this Act or immediately thereafter and at the end of each subsequent financial year at the rate specified in Schedule XIV:Section 123(2) provides that the depreciation shall be calculated as per the provisions of schedule II. Schedule II introduced:Depreciation to be based on useful life & residual valueUseful lives of various tangible assets prescribedResidual Value not more than 5% of the original cost of the assetFrom the date Schedule II becomes effective carrying amount of the asset shall be depreciated over the remaining useful life of the asset

D.P. Shah D. Shah & Associates5656SCHEDULE II (See section 123)USEFUL LIVES TO COMPUTE DEPRECIATION

PART A1. 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.D.P. Shah D. Shah & Associates5757USEFUL LIVES TO COMPUTE DEPRECIATION (Contd.)

2. For the purpose of this Schedule, the term depreciation includes amortisation.3. Without prejudice to foregoing provisions of paragraph 1,(i) In case of such class of companies, as may be prescribed and whose financial statements comply with the accounting standards prescribed for such class of companies under section 133 the useful life of an asset shall not normally be different from the useful life and the residual value shall not be different from that as indicated in Part C, provided that if such a company uses a useful life or residual value which is different from the useful life or residual value indicated therein, it shall disclose the justification for the same.

D.P. Shah D. Shah & Associates5858USEFUL LIVES TO COMPUTE DEPRECIATION (Contd.)

(ii) In respect of other companies the useful life of an asset shall not be longer than the useful life and the residual value shall not be higher than that prescribed in Part C.

(iii) For intangible assets, the provisions of the Accounting Standards mentioned under sub-para (i) or (ii), as applicable, shall apply.

D.P. Shah D. Shah & Associates5959USEFUL LIVES TO COMPUTE DEPRECIATION (Contd.)

PART B4. The useful life or residual value of any specific asset, as notified for accounting purposes by a Regulatory Authority constituted under an Act of Parliament or by the Central Government shall be applied in calculating the depreciation to be provided for such asset irrespective of the requirements of this Schedule.D.P. Shah D. Shah & Associates6060D.P. Shah D. Shah & Associates61Part 'C'

Depreciation (Contd.)Componentization of assets mandatedSeparate capitalization and depreciation of a part of an asset if its cost is significant to the total cost of the asset and its estimated life is different from the remaining assetAccounting for replacement costs.Significant increase in rate of depreciation of commonly used assets as compared to Schedule XIV rates under the 1956 Act

61D.P. Shah D. Shah & Associates62Nature of asset - illustrativeThe Companies Act, 2013The Companies Act, 1956Increase

% changeUseful Life Deemed rateGeneral Plant and Machinery other than continuous process plant 156.33%4.75%1.58%33.33%Continuous process plant 811.88%5.28%6.60%124.91%General furniture and fittings 109.50%6.33%3.17%50.08%Office equipment 519.00%4.75%14.25%300.00%Desktops, laptops, etc. 331.67%16.21%15.46%95.35%Electrical Installations and Equipment 109.50%4.75%4.75%100.00%Depreciable amount to be determined after reducing expected residual valueResidual value generally not more than 5% of the original cost of the asset62D.P. Shah D. Shah & Associates63Depreciation : Depreciation on tangible fixed assets based on estimated useful lifeFrom a Rates regime to Useful Lives Useful life of an asset is the period over which the asset is expected to be available for use by the entity or the number of production or similar units expected to be obtained from the asset63Production and exhibition of motion picture films (13 years)Steel (20-25 years)Glass manufacturing (8-13 years)Non-ferrous metals (25-40 years)Mines & quarries (8 years)Medical & surgical operations (13-15 years)Telecommunication (13-18 years)Pharmaceuticals and Chemicals (20 years)Exploration, production and refining of oil & gas (8-30 years)Civil construction (9-20 years)Generation, transmission and distribution of power (22-40 years)Salt works (15 years)D.P. Shah D. Shah & Associates64Depreciation of plant & machinery based on industry category. Specified industries:64D.P. Shah D. Shah & Associates65Notes 1. "Factory buildings" does not include offices, godowns, staff quarters.2. Where, during any financial year, any addition has been made to any asset, or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition or, as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed.3. The following information shall also be disclosed in the accounts, namely:(i) depreciation methods used; and(ii) the useful lives of the assets for computing depreciation, if they are different from the life specified in the Schedule.4. Useful life specified in Part C of the Schedule is for whole of the asset. Where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately.65Notes (contd.)5. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Ordinarily, the residual value of an asset is often insignificant but it should generally be not more than 5% of the original cost of the asset.6. The useful lives of assets working on shift basis have been specified in the Schedule based on their single shift working. Except for assets in respect of which no extra shift depreciation is permitted (indicated by NESD in Part C above), if an asset is used for any time during the year for double shift, the depreciation will increase by 50% for that period and in case of the triple shift the depreciation shall be calculated on the basis of 100% for that period.

D.P. Shah D. Shah & Associates6666Notes (contd.) 7. From the date this Schedule comes into effect, the carrying amount of the asset as on that date(a) shall be depreciated over the remaining useful life of the asset as per this Schedule;(b) after retaining the residual value, shall be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil.8. Continuous process plant means a plant which is required and designed to operate for twenty-four hours a day.D.P. Shah D. Shah & Associates6767Some examples :Where the useful life of assets still persist as compared to the useful life of asset provided under schedule II. Useful life remains.xlsxWhere useful life of asset is over as compared to useful life provided under schedule II. Useful life over.xlsxD.P. Shah D. Shah & Associates6868Poser CA 1956 had Schedule XIV wherein SLM Rates and WDV rates were prescribed for different class of assets and companies had an option to provide depreciation and any of these rates.Now CA 2013 has provided that depreciation has to be provided as per Schedule II of the Act wherein useful life of different class of assets have been provided and depreciation has to be provided accordingly till 95% of the value of asset is written of. Does this mean that depreciation has to be written off according to SLM only or still the companies have option to provide depreciation based upon other methods ?D.P. Shah D. Shah & Associates6969THANK YOUD.P. Shah D. Shah & Associates7070