1. SAIKRISHNA SAIVA

2. 1. INTRODUCTION 2. RATE OF DEPRECIATION CALCULATION 3. TREATMENT IF LIFE OF THE ASSET EXPIRED 4. PRACTICAL EXPOSURE 5. DEFER TAX WITH RETAINING EARNINGS SAIKRISHNA SAIVA

3.  As per companies act 1956, we used to do depreciation based on rates given by the ACT.  For existing assets, We have to calculate the rate of depreciation based on remaining life of the asset& for new assets which are purchased in current year (Financial year 2014-15), rates are already given…..  From the date of purchase of every asset we need to have record in order to calculate remaining life of the asset.  Once remaining life calculation is done, our job becomes simple for the calculation of depreciation.  Going forward will discuss with practical examples. SAIKRISHNA SAIVA

4. 1. As we already discussed, as per new ACT, we need to calculate depreciation rate which should calculate with help of remaining useful life of the asset. FORMULA is like this :- 1-(0.05)^(1/Remaining useful life) 1) Formula should apply on WDV as on 01-04-2014. 2) If the remaining life is +ve(Means life not expired) we can calculate the rate. 3) If the remaining life is not +ve ( Means life has expired),depreciation no need to calculate. treatment we will see in the next slides 4) 5% is reduced from WDV in the formula. It means we are keeping aside 5% as residual value. After it’s life expired there will be still 5 % in asset account. SAIKRISHNA SAIVA

5. Useful life of the asset is changed as per new ACT. Here is the statement showing the useful life as per both ACTs

6. SAIKRISHNA SAIVA

7. QUE 3 :- PUR DATE :-17/10/2011 Purchase cost 48226 Accumulated depreciation till 31-03-2014 is 14,969 Useful life as per new act 10 years Sol:- Expired life till 31-03-2014 = 2.45 years Remaining life is 7.54 Yrs. WDV on 31-03-2014 is 33257 Formula :- 1-(0.05)^(1/7.54) = 32.78% Depreciation is 33257 *32.78%=10901 SAIKRISHNA SAIVA

8. QUE 4 :- PUR DATE :-13/05/2006 Purchase cost 64000 Accumulated depreciation till 31-03-2014 is 62865 Useful life as per new act 3 years Sol:- Expired life till 31-03-2014 = 8 years Remaining life is -5 Yrs. WDV on 31-03-2014 is 1135 Residual Value @ 5% Retaining earnings 1135 *5%=57 1135-57 =1078 SAIKRISHNA SAIVA

9.  With these examples, we can easily understand how to calculate depreciation as per companies ACT 2013.  Since depreciation as per IT act and Companies act are different, we will calculate defer tax and will show effect in balance sheet & profit and loss account.  Here retaining earnings also comes into picture while calculating defer tax ………that we will see in the next slide with example.  Before going forward let’s discuss about defer taxes:- Defer tax liability :- Company claim more depreciation as per IT. Hence they paid less tax. In future they have to pay… so the future liability to pay tax should shown under the head of defer tax liability. ( simple logic boss how much you ate, show in financial statements ) Defer tax ASSET :- Company claim less depreciation as per IT. Hence they paid more tax. In future they have to pay less tax… so the future asset shown under the head of defer tax asset SAIKRISHNA SAIVA

10.  We will understand with a small example QUE :- WDV As per IT 6254570 ( on 31-03-2014) WDV As per companies act 16404236 Retaining earnings 1249627 Defer tax asset in last year 38005 Depreciation as per IT 1581057 Depreciation as per companies act 3077403 Sol:- STEP 1:- Defer tax on depreciation (3077403-1581057)*30.9%=462370 Depreciation As per IT is less, more tax paid. Hence defer tax asset is 462370+38005=500375. SAIKRISHNA SAIVA

11. Till this small child can do…..Now what to do ??????? STEP 2 :-( Difference in opening balance as per both ACTs )* 30.9% & compare with last year defer taxes opening balance As per companies act =16404236-1249627 Opening balance as per IT act = 6254570 Difference is 15154609 – 6254570 = 8900039 Defer tax as per new act in previous year 8900039*30.9%=2750112 But in previous year defer tax asset is 38005 Now we have create extra 2712107 as defer tax asset. Entry is like this :- Defer tax asset ac dr to 2712107 Retaining earnings a/c 2712107 Now in defer tax asset account balance will be 2750112….. SAIKRISHNA SAIVA