Ministry clears the air on reduction schedule
The changes are made by the Corporate Affairs Ministry to avoid confusion among share holders and bring consistency to its recent guidance. There will not be two classes of companies for reduction purpose as it was mentioned in the new company law schedule for depreciation. The ministry also restored revenue-based amortisation for toll-roads developed under the public-private partnerships. The depreciation method was given to users currently under the earlier company law and now finds a place in the new law as well.
Useful Life
The ministry has now mentioned that all the companies need to follow the ‘useful life’ mentioned for various tangible assets in the depreciation schedule. The ministry also mentioned that residual value of an asset cannot increased by 5 percent. The companies may diverge from these rules but they will need to give the clarification for the deviation in their financial statement.
Mr. Yogesh Sharma, Partner Assurance at Grant Thornton India LLP, says that the latest company law provided that rules on useful life under the depreciation schedule be generally followed. But now the language has been changed and the companies are required to follow the useful life specified by the Ministry.
Toll Road Projects
Mr. Sai Venkateshwaran, Partner and Head of Accounting Advisory Services, KPMG in India, says that a revenue oriented amortisation will maintain status quo for companies having toll road projects. He further added that the change in the law reverts back to the position under the erstwhile company law.
Mr .Sharma added that the involvement of revenue based method will not unnecessarily disturb the already adopted practice for companies with Toll Road assets especially considering that this was as such a very recent change.
Continuous Process Plans
The Corporate Affairs Ministry has modified the useful life of regular process plants to 25 years from 8 years mentioned in the depreciation schedule under the new company law. This may support the total gain of companies in industries such as cement, chemicals.
Source: The Business Line
Cement, Chemicals, Corporate Affairs Ministry, Depreciation, Grant Thornton India LLP, India, Public-private partnerships, Sai Venkateshwaran, Toll-roads, Yogesh Sharma
