RATES OF DEPRECIATION
 

Notes

1.“Buildings” include roads, bridges, culverts, wells and tube wells.

2.“Factory buildings” does not include offices, godowns, officers’ and employees’ quarters, roads, bridges, culverts, wells and tubewells.

3.“Speed boat” means a motor boat driven by a high speed internal combustion engine capable of propelling the boat at a speed exceeding 24 kilometres per hour in still water and so designed  that when running at a speed it will plane, i.e., its bow will rise from the water.

4.Where, during any financial year, any addition has been made to any asset, or where any asset has been sold, 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 the date on which such asset has been sold, discarded, demolished or destroyed.

5.The following information should also be disclosed in the accounts :

a) depreciation methods used; and                        

b) depreciation rates or the useful lives of the assets, if they are different from the principal rates specified in the Schedule.

6.The calculations of the extra depreciation for double shift working and for triple shift working shall be made separately in the proportion which the number of days for which the concern worked double shift or triple shift, as the case may be, bears to the normal number of working days during the year. For this purpose, the normal number of working days during the year shall be deemed to be :

(1) in the case of a seasonal factory or concern, the number of days on which the factory or concern actually worked during the year or 180 days, whichever is greater;

(2) in any other case, the number of days on which the factory or concern actually worked during the year or 240 days, whichever is greater.

     The extra shift depreciation shall not be charged in respect of any item of machinery or plant which has been specifically, excepted by inscription of the letters “NESD” (meaning “No Extra Shift Depreciation”) against it in sub-items above and also in respect of the following items of machinery and
plant to which the general rate of depreciation of 13.91% applies

a) Accounting machines.

b) Air-conditioning machinery including room air-conditioners.

c) Building contractor’s machinery.

d) Calculating machines.

e) Electrical machinery — switchgear and instruments, transformers and other stationary plant and wiring and fitting of electric light and fan installations.

f) Hydraulic works, pipelines and sluices.

g) Locomotives, rolling stocks, tramways and railways used by concerns, excluding railway concerns.

h) Mineral oil concerns field operations

1. Prime movers

2. Storage tanks (above ground)

3.  Pipelines (above ground)

4. Jetties and dry docks

i)   Mineral oil concerns — field operations (distribu­tion) — kerbside pumps, including underground tanks and fittings.

j)   Mineral oil concerns refineries:

1. Prime movers

2. LPG plant

k)   Mines and quarries

1. Surface and underground machinery (other than electrical machinery and portable underground ma­chinery).

2. Head-gears

3. Rails

4. Shafts and inclines

5. Tramways on the surface

l)   Neo-post franking machines

m)   Office machinery

n)   Overhead cables and wires

o)   Railway sidings

p)   Refrigeration plant containers, etc. (other than racks)

q)   Ropeways structures

1. Trestle and station steel work

2. Driving and tension gearing

r)   Salt works — Reservoirs, condensers, salt pans, delivery channels and piers if constructed of masonry, concrete, cement, asphalt or similar materials; barges and floating plant; piers, quays and jetties; and pipe­lines for conveying brine if constructed of masonry, concrete, cement, asphalt or similar materials.

s)   Surgical instruments

t)   Tramways, electric and tramways run by internal combustion engines — permanent way cars — car trucks, car bodies, electrical equipment and mo­tors; tram cars including engines and gears.

u)   Typewriters

v)   Weighing machines

w)   Wireless apparatus and gear, wireless appliances and accessories.

7. “Continuous Process Plant” means a plant which is required and designed to operate 24 hours a day.

8. Notwithstanding anything mentioned in this Schedule, depreciation on assets, whose actual cost does not exceed
Rs. 5,000 shall be provided depreciation @ 100%.

Provided that where the aggregate actual cost of individual items of plant and machinery costing Rs. 5,000 or less constitutes more than 10% of the total actual cost of plant and machinery, rates of depreciation applicable to such item shall be the rates as specified in Item II of the Schedule.

The Research Committee of the Institute of Chartered Accountants of India has issued a Guidance Note on Significant issues arising from the amendments made by Notification dated 16-12-1993 issued by the Department of Company Affairs. The Guidance Note inter alia covers the following issues in supplement to the earlier Guidance Note and supersedes the same.

“Continuous Process Plant”

In case of the plant which is designed to operate for 24 hours a day but is required to shut down for some reasons like lack of demand or maintenance etc., the relevant rate for Continuous Process Plant would be applicable. However, in case of Plant which may work for 24 hours in a day but which is not technically designed to work as such, extra shift rates prescribed in the schedule would be applicable.

A Continuous Process Plant is distinguished from repetitive process plant or assembly-line type plants. Such plants do not involve significant shut down and/or start up costs. Hence they are not technically required and designed to operate 24 hours a day.

An ancillary equipment/plant which is an integral part of the Continuous Process Plant should be depreciated along with the main Continuous Process Plant.

It is not necessary for the whole concern to be defined as a Continuous Process Plant.

Depreciation on low value items :

In respect of the assets acquired prior to December 16, 1993, the amount of write off depends on the alternative chosen to depreciate the asset.

Depreciation be provided on pro rata basis from the date of additions even in case of low value items. However, a company can write off fully, low value items on the Consideration of Materiality after disclosing appropriately such accounting policies in the accounts.