For the determination of Net Profits of a Company for a specified financial year, Sec. 349 of the Companies Act 1956, states that certain sums shall be credited and certain sums shall also be debited while arriving at the Net Profit earned by the Company during the year.
While deducting the sums specified under Section 349, clause (k) of sub-section 4 of Section 349 states that the Depreciation to be deducted shall be the depreciation on Assets computed as per the Rates of Depreciation as per Companies Act specified under Schedule XIV.
However, if any asset is sold, demolished, discarded or destroyed for any reason before the Depreciation as per the Companies Act, has been fully provided for – the excess if any, of the written down value of such asset over its sale proceeds/scrap value, shall be written off in the financial year in which the asset is sold, demolished, discarded or destroyed.
The Rate of Depreciation as per Companies Act to be charged on the Assets of a Company as stated in Schedule XIV shall be taken into account while preparing the Balance Sheet and Profit & Loss Account (P&L Account) in accordance with Sec. 350 and also while providing for dividend under Section 205
Depreciation as per Companies Act on Assets costing less than Rs. 5000
- Rate of Depreciation on Assets whose Actual Cost does not exceed Rs. 5000 shall be 100%
- However, where the aggregate cost of the Individual Item of Plant & Machinery costing less than Rs. 5000, constitutes more than 10% of the Total Actual Cost of Plant & Machinery, the rates of Depreciation shall be the rates specified in Schedule XIV and such Assets shall not be depreciated @100%
Points to be noted while computing Depreciation as per Companies Act
- 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 as per companies act 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 the Asset has been sold, discarded, demolished or destroyed.
- The calculations of the extra depreciation as per companies act for double shift working and for triple shift working shall be made separately in the proportion of number of days for which the concern worked double shift or triple shift, as the case may be bearing to the normal number of working days during the year.
- Depreciation Methods used
- Rate of Depreciation or the useful life of the Assets, if they are different from the principal rates specified in Schedule XIV
The MCA has also recently revised the Schedule VI and you can also refer to Changes in Schedule VI