Monday, September 1, 2014

MCA abolished concept of maximum useful life of asset; allows flexible life supported by technical advice

Ministry of Corporate Affairs has made amendment to Schedule II of the Companies Act, 2013. The Schedule II stipulates useful life of various assets for computation of depreciation. The amendment provides as under:

i)An option to adopt flexible useful life of assets: The existing schedule II provided that useful life of an asset shall not be longer than useful life specified in part C. Further, that if a company opts a useful life longer than that provided in Part C, then in that case it is required to make disclosure in its financial statements. The amended Schedule II provides that if a company adopts useful life different from Part C, the financial statements shall disclose such difference and provide justification supported by technical advice.

ii)Determination of useful life of significant part of assets separately, mandatorily with effect from April 1, 2014: The Schedule II also requires that where cost of part of asset is significant to total asset and useful life of such part is different from useful life of remaining parts of asset then, in such cases useful life of significant part shall be determined separately.

The amended schedule provides that such requirement shall be adhered to voluntarily by companies for financial year commencing on or after April 1, 2014 and it has to be mandatorily adhered to by companies for financial years commencing on or after April 1, 2015.