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HOW THE RATE OF DEPRECIATION IS DERIVED UNDER WDV METHOD AS PER COMPANIES ACT 2013

+5 votes
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HOW THE RATE OF DEPRECIATION IS DERIVED UNDER WDV METHOD AS PER COMPANIES ACT 2013?

posted Sep 5, 2015 by Samkit Kothari

5 Answers

+10 votes
 
Best answer

Hie Samkit,

So far as your query is concerned that HOW THE RATE OF DEPRECIATION IS DERIVED UNDER WDV METHOD AS PER COMPANIES ACT 2013.

Kindly find the solution done using an example:

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

enter image description here

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

enter image description here

Hope your query is solved with regard to HOW THE RATE OF DEPRECIATION IS DERIVED UNDER WDV METHOD AS PER COMPANIES ACT 2013

Thanks & Regards

answered Sep 8, 2015 by Rohit Agarwal
very well explained.
Whether this would be considered as change in accounting policy or the same would be covered under transition provisions
Thanks Puja for your appreciation !!
@ Ankit - Kindly note, the above treatment shall not be considered as change in accounting policy. However, if the management decides to change method from WDV to SLM method, it would be considered as change in accounting Policy.

N.B. Simply because, depreciation is provided based on estimated useful life it does not mean that SLM is used.
nice explanation....
+1 vote

Calculating Depreciation under WDV method:
1. Original Cost 100
2. Original Useful Life (Co Act, 1956) 20 years
3. Depreciation rate (Co Act, 1956) 13.91 %
4. New Useful Life (Co Act, 2013) 15 years
5. Expired Life 5 years
6. Remaining Useful Life (4-5) 10 years
7. Accumulated Depreciation 52.71

Depreciation will not be calculated over 15 years. It will be calculated over 5 years only.

Formula to calculate WDV rate:

formula

We will like to discuss how to calculate such square root:

First divide 5,000/1,00,000 : 0.05

Press under root button 12 times

Subtract 1

Divide by factor, here 10

Add 1

Press (* =) 12 times

After these, amount 0.7412

Now, 1 – 0.7412 = .2588 i.e. 25.88 %

Here, Carrying Amount = 100 – 52.71 = 47.29
Year Closing Balance
1 35.05
2 25.98
3 19.26
4 14.27
5 10.58
6 7.84
7 5.81
8 4.31
9 3.19
10 2.37

answered Sep 6, 2015 by Madhusudhanarao Konduri
0 votes

Here, Carrying Amount = 100 – 52.71 = 47.29
Year Closing Balance
1 35.05
2 25.98
3 19.26
4 14.27
5 10.58
6 7.84
7 5.81
8 4.31
9 3.19
10 2.37

answered Sep 29, 2015 by Acharya
0 votes

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

answered Dec 28, 2015 by Veeru
–1 vote
  1. Original Cost 100
  2. Original Useful Life (Co Act, 1956) 20 years
  3. Depreciation rate (Co Act, 1956) 13.91 %
  4. New Useful Life (Co Act, 2013) 15 years
  5. Expired Life 5 years
  6. Remaining Useful Life (4-5) 10 years
  7. Accumulated Depreciation 52.71
answered Sep 14, 2015 by Veeru
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