MCA-Amendment to Schedule II & Clarification AS 10

 

Amendment to Schedule II of the Companies Act 2013

MCA has further amended Schedule II of the Companies Act 2013 with regards to useful life, residual value and component accounting. 

With regards useful life and residual value the revised requirements are;

 

"The useful life of an asset shall not ordinarily be different from the useful life specified in Part C and the residual value of an asset shall not be more than five per cent. of the original cost of the asset:

 

Provided that where a company adopts a useful life different from what is specified in Part C or uses a residual value different from the limit specified above, the financial statements shall disclose such difference and provide justification in this behalf duly supported by technical advice" 

With regards component accounting the revised requirements are;

 

"(a) Useful life specified in part c of the schedule is for whole of the asset and where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately.

 

(b) The requirement under sub-paragraph (a) shall be voluntary in respect of the financial year commencing on or after the 1st April, 2014 and mandatory for financial statements in respect of financial years commencing on or after the 1st April, 2015." 

The provisions relating to transitional provisions have also been amended. The revised language in paragraph 7 sub-paragraph (b) reads as below.

 
"after retaining the residual value, may be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil." 

 

 

 

 

 

 

MCA - Clarification regarding Accounting Standards (AS) 10 - Capitalization of Cost

MCA after receiving number of representations seeking clarifications on capitalization of costs in cases of Competitive Bid power projects has vide General Circular No. 35/2014 dated 27th August 2014 issued a Clarification regarding Accounting Standards (AS) 10 - Capitalization of Cost. The text of the same is reproduced as below :-

1.    Accounting Standards AS-10 and AS-16 prescribe the principles of capitalization of various costs based on the underlying concept that only such expenditure should be capitalized as form a part of the cost of fixed assets which increase the worth of the assets. Cost incurred during the extended delay in commencement of commercial production after the plant is otherwise ready does not increase the worth of fixed assets. Such costs cannot, therefore, be capitalized.

2.    Accounting Standard AS 16, inter alia provides guidance with regard to part capitalization where some units of a project are complete. In case one of the units of the project is ready for commercial production and is capable of being used while construction continues for the other units, costs should be capitalized in relation to that part once the part is ready for commercial production.

It is further clarified that AS 10 and AS 16 are applicable irrespective of whether the power projects are 'Cost Plus projects' or 'Competitive Bid projects'.