   # How the rate of depreciation is derived under wdv method as per companies act 2013?

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How the rate of depreciation is derived under wdv method as per companies act 2013? posted Jun 14, 2017

Example:
PQR Limited has followed Schedule XIV rates for depreciation of a plant and machinery under WDV method by following rate of 13.91% as it runs under single shift. Date of acquisition is April 1, 2010 and cost incurred is Rs. 12,50,000 and accordingly WDV as at March 31, 2014 is Rs. 686,627.

On transition to Schedule II, how same will be accounted in the books of account of PQR Limited.

Solution:- The Company was computing depreciation as follows upto 31-03-2014

Application of Schedule II wef 01-04-2014
In accordance with the transitional provision of Schedule II, if there is a balance useful life on the date of transition, the remaining WDV needs to be depreciated over the balance useful life period. If the Company follows the life provided in the Schedule II, the life of the assets will be 15 years and hence remaining useful life is 11 years.

On 01-04-2014, WDV Stands at Rs. 686,627.00 (This is the carrying amount which para 7 of Schedule II speaks to). Hence, the balance WDV of Rs. 686,627 needs to be depreciated over the period of 11 years after giving the effect to residual value of the orignial asset [ 5% of Rs. 1250000 = Rs. 62500]

Since the Company follows WDV method for depreciation, the WDV needs to be depreciated by following the WDV method over the balance useful life.

Hence, the Company needs to calculate the WDV rate for the depreciation.

Considering residual value of 5%, the revised WDV rate would be computed following the formula mentioned below and hence the depreciation would be calculated accordingly.

Rate for depreciation as per WDV method would be computed using the following formula
R= {1 – (s/c)^1/n } x 100
Where R = Rate of Depreciation (in %)
n = Remaining useful life of the asset (in years)
s = Scrap value at the end of useful life of the asset
c= Cost of the asset/Written down value of the asset answer Jun 14, 2017
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