Key takeaways
- Schedule II prescribes useful lives, not rates. A rate is something you derive from the life, the residual value and the method you choose.
- Residual value is ordinarily not more than 5% of original cost. A different life or a higher residual is allowed only with a justification disclosed in the financial statements.
- Depreciation starts on the date an asset is available for use, not the purchase date, and is charged pro-rata for additions and disposals during the year.
- Significant parts with a different life are depreciated separately (component accounting), and lives, residual values and methods are reviewed at every year end.
On this page
What Schedule II is and who it applies to
Section 123 of the Companies Act, 2013 requires a company to provide for depreciation before it declares a dividend, and points to Schedule II for how depreciation is to be worked out. Schedule II has three parts:
- Part A sets the principles: depreciation is the systematic allocation of the depreciable amount of an asset over its useful life, and the depreciable amount is cost less residual value.
- Part B covers companies whose useful lives or residual values are notified by a regulatory authority (for example, some electricity companies). They follow those notified figures.
- Part C lists the useful lives for every other company, class by class: buildings, plant and machinery by industry, furniture, vehicles, office equipment, computers and so on.
Most companies therefore work with Part A and Part C. Companies that prepare Ind AS financial statements still use Schedule II as the reference point; under Ind AS 16 they estimate useful life and residual value themselves, and disclose the justification where these differ from Part C.
Schedule II replaced the old Schedule XIV of the Companies Act, 1956 for financial years beginning on or after 1 April 2014. The big change was the move from prescribed minimum rates to prescribed useful lives.
Useful lives in Part C
Part C gives a useful life in years for each class of asset. The life assumes single-shift working. A few commonly used rows are shown below; the full searchable list is in the free Schedule II useful life table.
| Asset | Useful life | SLM rate at 5% residual | WDV rate at 5% residual |
|---|---|---|---|
| Buildings (other than factory), RCC frame structure | 60 years | 1.58% | 4.87% |
| Factory buildings | 30 years | 3.17% | 9.50% |
| General plant and machinery (not continuous process) | 15 years | 6.33% | 18.10% |
| Furniture and fittings (general) | 10 years | 9.50% | 25.89% |
| Motor cars (other than those used in a business of running them on hire) | 8 years | 11.88% | 31.23% |
| Office equipment | 5 years | 19.00% | 45.07% |
| Servers and networks | 6 years | 15.83% | 39.30% |
| End-user devices such as desktops and laptops | 3 years | 31.67% | 63.16% |
When can a company use a different life?
Part A says the useful life shall not ordinarily be different from Part C, and the residual value shall not be more than 5% of the original cost. A company may adopt a different life or residual value, but it must disclose the justification, normally supported by technical advice, in its financial statements. Keep that technical advice on file: the auditor will ask for it, and so will a future reviewer of the accounts.
Rows marked NESD and continuous process plant
Some Part C entries are marked NESD, meaning no extra shift depreciation is allowed on them. Continuous process plant is plant designed to run round the clock; where no special entry applies it has a longer life (25 years) and extra-shift depreciation does not apply to it.
SLM and WDV: choosing a method
Schedule II does not tell you which method to use. Straight-line (SLM) and written-down value (WDV) are both acceptable; the choice is an accounting policy that should reflect the pattern in which the asset's benefits are consumed, and should be applied consistently to a class.
Straight-line method
Annual depreciation = (cost − residual value) ÷ useful life. The charge is the same every full year and the asset reaches its residual value exactly at the end of its life.
Written-down value method
Each year's charge is a fixed percentage of the opening net book value. Because Schedule II gives a life rather than a rate, the rate is derived so that the asset reaches its residual value at the end of its life: rate = 1 − (residual ÷ cost)^(1 ÷ life). At a 5% residual this gives 18.10% for a 15-year asset and 63.16% for a 3-year asset. If the residual is nil, the formula breaks down (it gives 100%), so a WDV asset needs either a residual value or an explicitly chosen rate.
Pro-rata depreciation and the start date
Schedule II requires depreciation on additions and disposals during the year to be calculated on a pro-rata basis: from the date of addition, or up to the date of sale or discard. Two practical questions follow.
Which date starts depreciation?
The date the asset is available for use: installed, in the location and condition needed to operate as intended. That is often later than the invoice date. A machine bought in February and commissioned in May sits in capital work-in-progress until May and is not depreciated before then. Using the purchase date overstates depreciation; using the date of first actual production can understate it.
Days or months?
Pro-rata can be worked by days or by months; days are the more precise and easier to reproduce. A financial year has 366 days when it contains 29 February (FY 2027-28, for example). The disposal day itself is commonly treated as not depreciated, so an asset sold on 1 October is depreciated to 30 September; confirm the convention with your auditor and apply it consistently.
Extra-shift depreciation
Part C lives assume single-shift working. For any period in which an asset works double shift, depreciation for that period is increased by 50%; for triple shift, by 100%. The increase does not apply to rows marked NESD or to continuous process plant.
| Shift pattern for the year | Normal charge | Increase | Total for the year |
|---|---|---|---|
| Single shift all year | ₹95,000.00 | Nil | ₹95,000.00 |
| Double shift for 183 of 365 days | ₹95,000.00 | ₹95,000 × 183 ÷ 365 × 50% = ₹23,815.07 | ₹1,18,815.07 |
| Triple shift all year | ₹95,000.00 | ₹95,000.00 | ₹1,90,000.00 |
Keep shift records (production logs, attendance or meter readings) for each asset that claims the increase. Whether the extra charge shortens the remaining life is a policy question to agree with your auditor.
Component accounting
Part C lives are for the whole asset. Where a part of an asset has a cost that is significant relative to the total, and a useful life different from the rest, Schedule II requires that part's life to be determined separately. This has been mandatory since financial years beginning on or after 1 April 2015.
Typical components are the lining of a furnace, the engine of an aircraft, a lift within a building or the roof membrane of a warehouse. What counts as significant is a company policy; many companies set a threshold as a percentage of the asset's cost.
In the register, each component becomes its own line (or child asset) with its own cost, life, residual value and method. When a component is replaced, the old one is derecognised at its remaining book value and the new one is capitalised.
Annual review and change in estimate
Useful life, residual value and depreciation method should be reviewed at least at every year end (AS 10 and Ind AS 16). If the expectation has changed, the change is a change in accounting estimate and is applied prospectively: earlier years are not restated.
For example, an asset costing ₹1,20,000 with nil residual and a 10-year life is depreciated at ₹12,000 a year. If, at 1 April 2027, the total life is revised to 6 years, 4 years remain. The book value of ₹96,000 is spread over those 4 years at ₹24,000 a year. FY 2025-26 and FY 2026-27 stay at ₹12,000.
Record the reason, the date and the approval for every change. An auditor will want to see why the estimate moved and who agreed to it.
Transition, disposals and disclosure
On disposal, depreciate up to the disposal date, then compare net sale proceeds (excluding GST) with the net book value. An asset costing ₹1,00,000 with accumulated depreciation of ₹47,500, sold for ₹60,000, gives a gain of ₹7,500.
When Schedule II first applied (from 1 April 2014), assets whose remaining useful life was nil were written down with the carrying amount, after retaining the residual value, recognised in opening retained earnings; other assets were depreciated over their remaining life. This matters today mainly when you take over an old register and need to understand its opening figures.
In the financial statements, the accounting policy note states the method and the useful lives used, and the justification wherever they differ from Part C. The fixed asset note under Schedule III shows the movement in gross block, accumulated depreciation and net block for each class, with previous-year comparatives.
General information, not tax or legal advice
How FixedAsset Pro handles this
FixedAsset Pro keeps the Companies Act book on every asset and shows how each figure was reached.
- Part C lives ship as reference data; pick a class and the life, method and residual come from your policy. Depreciation
- Explain on any depreciation line shows the inputs, the days counted, the rate and the rounding. Depreciation
- A change of estimate is recorded as an event with its reason; posted periods are never rewritten. Financial Management
- The Schedule III fixed asset movement and both-books comparison come from the same register. Reporting & Analytics
