This document provides an overview and guidance on depreciation concepts according to Schedule II, including component accounting. It discusses calculating depreciation for individual components that have different useful lives than the overall asset. Other topics covered include double and triple shift depreciation, amortization of intangible assets, useful life and residual value of assets, and depreciation for continuous process plants. The presentation was created by Dipendra Prasad Poudel.

1. Guidance to Depreciation as per Schedule II
Inclusive of the guidance notes issued by ICAI
Covers the concept of Component Accounting
Presented By: Dipendra Prasad Poudel
mailfordipendra@gmail.com

2. Presented By: Dipendra Prasad Poudel
Presentation Details
Amortization
of intangible
assets
General
Introduction
Component
Accounting and
calculating cost
of component

3. Presented By: Dipendra Prasad Poudel
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4. Presented By: Dipendra Prasad Poudel
Depreciation: Definition and Highlights from IND AS 16
 Depreciation : Depreciation is the systematic allocation of depreciable amount over its useful life.
 Depreciable Amount : The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.
Component Accounting :Each part of an item of property, plant and equipment with a cost that is significant in relation to
the total cost of the item shall be depreciated separately.
Depreciation of assets begins when it is available for use, i.e. when it is in location and condition necessary for it to be capable
of operating in a manner intended by management.
The residual value and the useful life of an asset shall be reviewed at least once in a financial year-end and, if expectations
differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with
IND AS 8.
Where, during any financial year, any addition has been made to any asset, or where any asset has been sold or discarded,
demolished or destroyed, the depreciation on such assets shall be calculated on a pro rata basis from the date of such
addition or, as the case may be, up to date on which assets has been sold, discarded, demolished or destroyed.

5. Presented By: Dipendra Prasad Poudel
Useful Life of assets
 Useful life of assets is defined in Schedule II of Companies Act 2013.
 The useful life of an assets is the period over which an assets is expected to be available for use by an entity, or
 The number of products from production or similar units expected to be obtained from the assets by entity.
Useful life of an assets
 Useful life of an assets is defined in Part C of schedule II of Companies Act 2013.
 In case a company adopts useful life different from what is specified in Part C, the financial statements shall disclose such
difference and provide justification in this behalf duly supported by technical advice.

6. Presented By: Dipendra Prasad Poudel
Residual Value of assets
 Residual value of assets is defined in part A of Schedule II of Companies Act 2013.
 The residual value of asset shall not be more than 5% of original value of assets.
 In case the residual value is more or less than 5% of original value of assets, then the entity will have to disclose such
difference and provide justification in this behalf in financial statements. Such justification should be supported by technical
advice.

7. Presented By: Dipendra Prasad Poudel
Component Accounting : An Introduction
 Applicability : It was voluntarily applicable on or after financial year commencing from April 1,2014 and mandatory for
financial statements in respect for financial year commencing from year on or after April 1,2015. Component
accounting is to be done for entire block of assets after application. It can’t be restricted to only new assets.
Definition : Useful life specified in Part C of Schedule II is useful life of whole asset. Where the cost of a part of assets is
significant to total cost of the asset and useful life of that part is different from useful life of the remaining assets,
useful life of that asset shall be determined seperately.
 The application of Component accounting is likely to cause significant change in measurement of depreciation and
accounting for replacement cost.
Currently, companies need to expense replacement costs in the year of incurrence. Under component accounting
companies will capitalize costs in the year of incurrence.

8. Presented By: Dipendra Prasad Poudel
Finding current value of Component
 Technique for finding key components requiring separate depreciation.
 Significant cost, and
 Different useful lives from remaining part of the assets.
 Measures to identify value of key components requiring calculation of depreciation separately.
 Break up cost provided by vendor
 Cost breakup given by internal/external technical expert.
 Current replacement cost of related assets and applying the same on the historical cost basis.
For Example: PGI Limited purchased a generator for INR 150,000. As per the break up cost provided by vendor the cost
of engine is 1,00,000 and it is estimated by internal experts that engine will work for 3 years whereas remaining part
will work for 7 years.
In this case engine shall be depreciated separately and remaining part shall be depreciated separately.

9. Presented By: Dipendra Prasad Poudel
Double and Triple Shift Depreciation
All the assets except as classified as NESD* in Part C of schedule II are eligible to charge extra shift depreciation. If an
assets is used for any time during the year for double shift, the depreciation will increase by 50% for that period in
case of triple shift the depreciation shall be calculated on the basis of 100% for that period.
For determining depreciation charges for assets used in double or triple shift operations, the useful life as given
in Schedule II is to be treated as based on single shift operations .
*NESD : Non Extra Shift Depreciation

10. Presented By: Dipendra Prasad Poudel
Amortization of Intangible Assets
For intangible assets, the provision of accounting standards applicable for time being in force shall apply.
Except, Toll roads created under “Build, Operate and Transfer” (BOT), “Build, Own, Operate and Transfer” (BOOT) or any
other form of “Public, Private Partnership” (PPP) route in case of road projects.
The amortization amount or rate shall ensure that the whole of the cost of intangible asset is amortized over the
concession period.
Revenue shall be reviewed at the end of each financial year and projected revenue shall be adjusted to reflect such
changes, if any, in the estimates as will lead to the actual collection at the end of concession period.

11. Presented By: Dipendra Prasad Poudel
Amortization rate = Amortization Amount
Cost of Intangible Assets
× 100
Amortization Amount =
Actual Revenue for the Year
Projected Revenue from
Intangible assets
× Cost of Intangible Assets

12. Presented By: Dipendra Prasad Poudel
Continuous Process Plants
Continuous process plants are those assets which is designed to operate 24 hrs in a day.
For these assets, useful life is same as defined in Part C of Schedule II
Useful life for Continue Process Plant for which no special rate has been prescribed is 25 years.
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