Intangible assets such as copyrights, computer software, and patents, and tangible assets like machinery, furniture and fixtures, equipment, buildings, vehicles, and computers can be depreciated by companies. Thus, depreciation serves the purpose of calculating a company’s actual value of assets. The depreciation charged as an expense in the Profit & Loss A/c helps compensate the company for the value lost on the depreciable assets. Depreciable assets are those assets that are used for the purpose of business which can be depreciated.

Important points to remember while calculating depreciation as per companies act, 2013 on tangible assets

All business assets must be expensed immediately upon purchase if no depreciation is applied. This would lead to significantly higher profits when revenue is recognised and substantial losses when transactions occur. Consequently, a company not using depreciation would experience significant yearly fluctuations in its financial results. However, it is difficult to directly link a specific asset to the revenue it generates under this matching concept.

The difference in the amount of depreciation as per companies act and income tax act results in Deferred Asset or Deferred Liability. Deferred Asset or Deferred Liability is shown in the balance sheet of the company. As per accounting standard 6 (AS 6), it is mandatory to claim depreciation as per companies act because it has a significant effect in determining and presenting a company’s financial position and results. In addition to this, charging depreciation becomes mandatory if the company desires to declare a dividend or pay managerial remuneration. You can use the below Depreciation formula to calculate the depreciation rate. The primary method for steady depreciation is the straight-line method.

(i) General rate applicable to plant and machinery not covered under special plant and machinery

For those assets, this calculation is done from the date of addition of the assets, or till the date when the assets were in use in the company until they were destroyed, demolished, rejected, thrown away, or sold. NESD refers to “no extra shift depreciation.” It refers to the assets where no extra depreciation is charged when those assets are used for extra shifts than usual, which is one shift. Provisions for depreciation begin with the requirement of calculating revenues of the company in the given year. The revenue of any company in one accounting year can only be calculated after determining the total revenue made by the company as compared to the revenue spent on various requirements.

1. Part C of Schedule II talks about the specific useful lives for all the tangible assets that may fall into either of these above-mentioned categories.
2. TREATMENT OF SALE AND PURCHASE OF FIXED ASSETS DURING THE YEAR – If there is any addition to the asset or asset is sold, discarded, demolished or destroyed then the calculation is made according to the date of such event.
3. Hence, it is crucial to calculate depreciation as per the companies act 2013 to get a perfect picture of its profit and losses.
4. The different types of depreciation include the double declining balance method, straight-line method, sum of years’ digits depreciation, and written down value method.

Companies Act 2013 also provides the depreciation rate applicable to motorbikes. The depreciation rates applicable to different assets are listed under the Companies Act 2013, Part “C” of Schedule II. When you buy a car or bike, its value diminishes slowly with time due to natural wear and tear. It is the reduced estimated value of a fixed asset within a financial year. Based on this the charge for first year would be Rs. 4.16 Crore (approximately) (i.e. Rs. 5/Rs. 600 x Rs. 500 Crores) which would be charged to profit and loss and 0.83% (i.e. Rs. 4.16 Crore/ Rs 500 Crore x 100) is the amortisation rate for the first year.

(g) Plant and Machinery used in manufacture of steel

Thus it is always recommended depreciation on car as per companies act to keep the IDV as close to market value. The depreciation value of your car or bike depends heavily on the brand, model, and price. Using an online car or bike depreciation calculator accessible from several insurers will help you consider what worth your vehicle presently retains, depending on the current market pricing. Thus, whether you intend to sell a car or bike or get it insured, you must account for all depreciating factors. For the bike depreciation rate after five years, the applicable rate to calculate IDV is mutually decided by the policyholder and insurance provider in order to avoid discrepancies. For car depreciation rate after five years, the rate gets mutually decided by the insurance provider and owner.

( What is the depreciation rate on tally software ?

To calculate IDV, the car owner and insurance provider mutually decide on a specific range. The amortisation amount or rate should ensure that the whole of the cost of the intangible asset is amortised over the concession period. 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. The assets used for the business that depreciates over time are called depreciable assets.

However the guidance note provided by ICAI suggests that normal depreciation shall be calculated and it should be increased by 50%/100% for double/triple shifts respectively. (b) Expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair and maintenance programme, and the care and maintenance of the asset while idle. (b) after retaining the residual value, 5may be recognized in the opening balance of retained earnings where the remaining useful life of an asset is nil.