Depreciation Rates Companies Act

Depreciation Rates Companies Act

Under the Companies Act, depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. The Companies Act of 2013 in India specifies the rates and methods of depreciation applicable to companies.

Depreciation Rates as per Schedule II of the Companies Act, 2013

1. Types of Depreciation:

• Straight-Line Method (SLM): The same amount is deducted each year.
• Written Down Value Method (WDV): A fixed percentage is deducted from the book value each year.

2. Depreciation Rates: The rates of depreciation are specified for various classes of assets. Here are some key categories and their corresponding rates:

1. Buildings:

   • Factory buildings: 10%
   • Other buildings: 5%

2. Plant and Machinery:

   • General Plant and Machinery: 15%
   • Specific Machinery (e.g., computers, electronic equipment): 40%

3. Vehicles:

   • Motor vehicles: 15%
   • Buses and trucks: 30%

4. Furniture and Fixtures: 10%

5. Intangible Assets:

   • Patents, trademarks, and similar intangible assets: 25%

3. Additional Points:

• Useful Life: The useful life of an asset is defined in Schedule II, which specifies minimum and maximum life.
• Component Accounting: Companies are required to apply component accounting, meaning significant parts of an asset should be depreciated separately.

4. Changes and Updates:

• The rates mentioned in the Companies Act are subject to change based on notifications from the Ministry of Corporate Affairs (MCA) and must comply with accounting standards.

Depreciation Calculation

To calculate depreciation, you can use the following formulas:

• Straight-Line Method (SLM):

  Depreciation=Cost of Asset−Residual ValueUseful Life\text{Depreciation} = \frac{\text{Cost of Asset} – \text{Residual Value}}{\text{Useful Life}}Depreciation=Useful LifeCost of Asset−Residual Value

• Written Down Value Method (WDV):

  $$\text{Depreciation}=\text{Book Value at Beginning of Year}\times \text{Depreciation Rate}$$