Depreciation books: Schedule II and income tax
Books
Every company keeps the Companies Act and Income Tax books; they are always there. You can enable an Ind AS / IFRS, Management or custom book as well. One book is the corporate book, the one that posts to the general ledger; for an Indian company this is normally the Companies Act book.
Open Accounting › Depreciation Books (web and desktop). On the web, the tabs are Books, Policy, Methods, Category defaults, Components, Jurisdiction & IT blocks and Asset events.
- Policy sets each book's rules, such as the pro-rata and month rule, low-value threshold, component threshold, extra-shift, suspension while an asset is not available for use, true-up at end of life, and whether the disposal day is depreciated. Fields that the law fixes for a statutory book are disabled.
- Category defaults set lives and methods per category for that book.
- Methods lets you add custom methods, such as a percentage table that must total 100%. Built-in methods cannot be changed.
Companies Act (Schedule II)
- SLM or WDV, as set on the category or the asset.
- Depreciation starts on the put-to-use date and is pro-rated by days.
- The residual value (normally 5% of cost) is never crossed: in the last year of life, depreciation brings NBV down to the residual exactly.
- WDV rates are derived from the life and the residual. For example, a 5-year life gives 45.07%.
Income tax (section 32, block of assets)
- Depreciation is worked out per block: opening WDV plus additions minus sale proceeds, at the block rate.
- Assets put to use for less than 180 days in the year get half the rate.
- Additional depreciation under s.32(1)(iia) is available for eligible new plant and machinery; tick it on the asset.
- If a block is wiped out or goes negative, s.50 applies: no depreciation, and the result is a short-term capital gain or loss.
- If the company has opted for s.115BAA, additional depreciation is not allowed.
Changing an asset's parameters
Once depreciation has been posted, an asset's life, cost or method changes only through finance events from a date onwards: change of estimate, cost adjustment, correction, pause and resume. They are on the asset card (the Finance Events tab on the desktop, Asset events in Depreciation Books on the web). Explain shows step by step how a figure was worked out.
The statutory defaults are reference data that a Chartered Accountant has not yet reviewed. Agree the lives, rates and policy choices with your auditor before relying on them.