Depreciation Cos. Act--Minimum Rates

Hi Josh,

Yes, you can provide depreciation under the Companies Act at rates different from those laid down in Schedule XIV to the Cos Act. But the rates the company chooses, on a scientific evaluation of the life of the assets, can't be lower than those mentioned in Schedule XIV. Note 5 below Schedule XIV says this:[5. The following information should also be disclosed in the accounts:(i) depreciation methods used; and(ii) depreciation rates or the useful lives of the assets, if they are different from the principal rates specified in the Schedule.]This note read with Section 349(4)(k) and Section 350 would mean that there's no problem if a company chooses to determine depreciation on the basis of the useful lives of the assets determined by itself. If the useful life of the assets as determined by the company happens to be lower than the life of the assets based on which Schedule XIV rates are prescribed, then the higher amount of depreciation dictated by such lower life can be provided, ignoring what Schedule XIV says. But if the company estimates the lives of the assets to be more than that envisaged by the DCA under Schedule XIV, it doesn't have the liberty to charge depreciation at lower rates. Schedule XIV rates are the minimum ones. The Expert Advisory Committee of the ICAI has also opined thus.Actually, managements may be tempted to inflate their profits to increase their managerial remuneration, which is based on a percentage of the book profits. So companies have been permitted to provide depreciation at rates higher than those mandated by Schedule XIV. But they can't do that at rates lower than those. Under the Tax laws, you can't claim depreciation at rates higher than those specified in Rule 5; under the Cos law, you can't charge depreciation at rates lower than the ones mentioned in Schedule XIV. A proper disclosure in the Notes to Accounts of course would be required. A leasehold land is not depreciated; rather its cost is amortized over the period of the lease. The initial amount paid is a sort of Advance Rent. The annual amortization would constitute "Outgoings" u/s 349(4)(j) for the purposes of determining net profits.

Thanks,

CA Sanjeev Bedi---

In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "josh" wrote:>>

Dear Members> >

My query is regarding Depreciation. > > 1. As rate of depreciation has been prescribed in Schedule XIV, > can any company chose the rate of depreciation other than rate in > Schedule-XIV by disclosing the fact in the note of account?> > 2. Rate of depreciation for the land has not been prescribed in > schedule XIV. In case of land leased for exploration on iron ore, coal > or minerals, where value of land depleted/ attenuated during the > course of extraction of Ore, mineral etc. Can depreciation will be > applicable in this case and if yes at what rate?