Depreciation in general
is reduction in the value of asset because of wear and tear over the time. This
reduction may be due to various reasons like use of asset, because of
technological changes,etc. In other words, we can say that it the allocation of
cost of assets over the useful life of it. As the basic principle of accounting,
“matching concept” states that the expenses should be allocated in the same
period as it occurs. Because of it, depreciation is allocated in various
periods as it is not used in one period it is to be used over the various
financial periods.
There are various
methods to calculate depreciation on asset but there are certain issues arisen
because of the implementation of the Companies Act 2013. As it has taken place
of Companies Act 1956. Earlier, we used to follow Schedule XIV of The Companies
Act 1956 but now rather than that we are using Schedule II of The Companies Act
2013. Firstly we have to understand the difference between the method and the
norms which a company has to follow for the calculation of the depreciation.
Like certain standards have been set the a company has to follow the companies
act prevailing in the country and accounting standard 6. But they can use
various methods for the calculation of the value of depreciation for example:
straight line method, diminishing value method, etc.
Now, we are in position
to differentiate in between the both acts
S.No.
|
The Companies Act
1956
|
The Companies Act
2013
|
1.
|
This act states the
systematic allocation of the cost over the useful life of tangible asset.
|
This act states the
useful life of the asset.
|
2.
|
The useful can differ
as per AS 6 on the basis of management’s estimate
|
The useful life can’t
be changed
|
3.
|
No additional
disclosure required if there is change in the useful life
|
Additional
disclosure is required if there is change in the useful life as per Schedule
II
|
4.
|
There was a concept
of double/ triple shift in the companies act 1956
|
There is no concept
of double or triple shift in this act
|
5.
|
If the asset value is
less than Rs. 5000.00 then it was fully depreciated in the year expense was
incurred.
|
This does not applies
to the new act.
|
Author
Kirtika
Tolani
