USEFUL LIVES TO COMPUTE DEPRECIATION AS PER SCHEDULE II OF THE COMPANIES ACT, 2013

Depreciation is an accounting method used to allocate the cost of an asset over its useful life. It is an essential aspect of financial reporting, providing a systematic way to account for the wear and tear or obsolescence of an asset over time. In India, the computation of depreciation is governed by Schedule II of the Companies Act, 2013. This schedule provides guidance on the useful lives of various assets for the purpose of calculating depreciation. Let’s take a closer look at the useful lives prescribed by Schedule II.

1. Buildings: The useful life of buildings is typically determined based on their nature, construction, and the intended use of the building. As per Schedule II, the useful life of buildings is generally considered to be 30 years. However, for certain types of buildings such as temporary structures, buildings used for exhibition purposes, or buildings with an expected life shorter than 30 years, the useful life is determined accordingly.
2. Plant and Machinery: Plant and machinery encompass a wide range of assets used in manufacturing, production, or other operational activities. Schedule II provides a list of plant and machinery items along with their respective useful lives. For example, assets such as air conditioning plants and equipment, refrigeration equipment, and hydraulic works in ships have a useful life of 15 years. However, the schedule also recognizes that certain assets may have a different useful life due to technological advancements or specific circumstances. In such cases, companies can determine the useful life of the asset based on a technical assessment.
3. Furniture and Fixtures: Furniture and fixtures refer to assets such as desks, chairs, cabinets, and other similar items used for office or commercial purposes. According to Schedule II, the useful life of furniture and fixtures is typically considered to be 10 years. However, companies can deviate from this standard if they can provide a reasonable justification based on their specific circumstances.
4. Vehicles: Vehicles include cars, trucks, buses, and other modes of transportation used by companies. The useful life of vehicles, as per Schedule II, is generally determined to be 8 years. Similar to other assets, if a company can substantiate the use of a different useful life for a vehicle, it may deviate from the standard prescribed by the schedule.
5. Intangible Assets: Intangible assets are non-physical assets that provide a company with certain rights or privileges. These can include patents, copyrights, trademarks, and software. Schedule II states that the useful life of intangible assets should be determined based on factors such as the expected usage, contractual or legal provisions, and any legal or statutory requirements that may affect their useful life.

It’s important to note that the useful lives provided in Schedule II are considered as guidelines. Companies have the flexibility to determine the useful lives of their assets based on their specific circumstances, as long as they can provide reasonable justifications for the deviation. However, any significant deviation from the prescribed useful lives requires proper documentation and justification to ensure compliance with the Companies Act, 2013.

In conclusion, Schedule II of the Companies Act, 2013 provides a framework for determining the useful lives of various assets for the purpose of calculating depreciation. It offers guidance on the standard useful lives for different asset categories, while also recognizing the need for flexibility based on specific circumstances. Adhering to these useful lives ensures that companies maintain accurate and consistent depreciation records, thereby facilitating transparent financial reporting.