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Comparison of Depreciation as per Companies Act 1956 and Companies Act 2013

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
The Companies Act 1956
The Companies Act 2013
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.
The useful can differ as per AS 6 on the basis of management’s estimate
The useful life can’t be changed
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

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
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.
Kirtika Tolani

Banking Calculators GST

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