A major change was made in the companies (amendment) act, 1988 by delinking the rates of depreciation under the Income Tax Act, 1961 for the purpose of providing depreciation under the companies act. Prior to the said amendment, section 205 of company registration act 1956 to provide depreciation as follows:
Under sub-section (2), depreciation shall be provided,
To the extent of section 350. As per section 350 prior to the amendment it was provided that depreciation was to be deducted every year with reference to the written down value of the asset at the rate specified in the Income Tax Act 1961.
It is stated that one of the reasons for the amendment was that there was huge increase in the rates of depreciation under the Income Tax Act. The high amount of depreciation in the earlier years of use of an asset under Written Down Value Method of depreciation left inadequate profit for distribution of dividend with registration of tax raised in their amendment depreciation.
The Companies (Amendment) Act, 2000
The amount of depreciation to be taken into account for computing managerial remuneration shall in future be the amount of depreciation made in the profit and loss account instead of the amount of depreciation calculated with reference to the Written Down Value.
USE of old rates or new rates to existing assets
The circular dated 20-12-1993 brought stated that a company following, the SLM in respect of the assets existing on the date schedule came into force may adopt any of the following alternative basis for computing, depreciation charge:
The department stated that the question of providing depreciation on SLM and the calculation of specified period, as suggested in Department Circular dated 10-1-1985 has been re-examined. The same need not be changed subsequently consequent on changes in the rates of depreciation under the Income Tax Act.
Accounting standards are issued by the council of the Institute of Chartered Accounts of India (ICAI) on various aspects of financial accounting and financial policies being in use in various business activities in the country. The registration of various forms specified in the terms of accounting standards.
Mandatory nature of Accounting Standards
The accounting standards issued by ICAI standards which have to be complied with to ensure that financial statements are prepared in accordance with generally accepted accounting standards. The mandatory registration of their company to be assigned their accounting standards in the institutes like ROC.
Form for making application to Government
As against the Form prescribed above, the present position is that as per the amendments made to general rules and forms. It has been prescribed for making application to central government for not providing depreciation of an company and it is stated under the Form No. that this is pursuant to section 205(2)(c).