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May 08, 2015 at 03:17 AM

# Depreciation calculation based on WDV on remaining useful life

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Dear Experts

I have a requirement of calculating depreciation on WDV method on remaining useful life. the scenario explains as below

The Company was original following Written Down Value Depreciation Method wherein Depreciation is calculated yearly on a pro-rata basis at a fixed percentage on the opening book value of the assets as illustrated below:

Particulars

2011-12

2012-13

2013-14

Opening Book Value of Assets

900

810

Add: Cost of Acquistion during the year

1,000

-

-

Less: Depreciation for the year @ 10%

100

90

81

Closing Book Value of Assets (WDV)

900

810

729

In short depreciation was calculated at every year on a fixed percentage basis on the written down value of the asset.

The Company had maintained separate depreciation keys in the system for each Asset Class (eg. Plant & Machinery, Building, Office Equipments etc.). Each Depreciation key specified the rate of depreciation to be charged.

However the New Companies Act 2013, the act has done away with the rates of depreciation. Instead the act specifies useful life of the assets class over which the asset has to be depreciated. (For example the act specifies that Non-Factory Building have to be depreciated over a period 60 years). Further in case of assets which have already been use as at 1st April 2014 will have to be depreciated over the remaining useful life of the assets. For example,

In case of an asset which purchase on 1st April 2011, as at 1st April 2014 the asset has already been in use for a period of 3 years. Now, if the useful life of the asset as specified by the new act is 5 years the remaining useful life of the asset as at 1st April 2014 works out to 2 years. Thus the asset will now have to be depreciated over a period 2 years starting from 1st April 2014.

However, since the new act does not specify the WDV rate at which the asset is to be depreciated, the implied rate of depreciation considering the remaining useful life will have to be calculated using the following Formula as attached file1

Where n = Useful Life of the asset (Residual Value in case the asset is existing as on 1st April 2014.

Book Value = Written Down Value as on 1st April 2014 or Cost of Acquisition in case of assets newly purchased during the year.

Therefore continuing our above example, suppose the useful life of asset acquired in 2011-12 specified under the new Companies Act is 15 years. Thus the remaining useful life of the asset as at 1st April 2014 will be 12 years and residual value will be calculated @ 5% on the original cost of the asset. Therefore the implied rate of depreciation under WDV Method with remaining useful life of 12 years will be computed as attached file, file2

Thus the implied rate of depreciation would be 20.01% and the depreciation for the year 2014-15 would be calculated as follows:

Particulars

2013-14

2014-15

Opening Book Value of Assets

810

729

Add: Cost of Acquistion during the year

-

Less: Depreciation for the year @ 20% for FY 2014-15

81

146

Closing Book Value of Assets (WDV)

729

583

Likewise, individual depreciation rates would have to be computed for all the assets outstanding on 1st April 2014.

This can be done either by manually calculating the depreciation rate for all assets and then create separate depreciation keys for all assets. However creating so many keys would be a cumbersome process.

Can you suggest An alternative to the above process so which would automatically calculate the depreciation rates based on the useful life entered on each assets?

Kindly revert at the earliest

Thanks

venu

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