Depreciation on Low Value Items

The Department of Company Affairs (Now Ministry of Company Affairs), Government of India, issued a notification during December 1993, which has inserted as Note No. 8 in Schedule XIV to the Companies Act, 1956. Notwithstanding anything mentioned in Schedule, depreciation on assets, whose actual costs does not exceed Rs. 5,000 shall be provided @ 100%. According to the above note, the individual items of fixed assets whose actual cost does not exceed Rs. 5,000, shall be charged depreciation @ 100%. However, in respect of the fixed assets acquired prior to December, 1993 alternative basis of computing the depreciation charge are permitted. However, if individual item of plant and machinery costing Rs.5000 or less constitutes more than 10 percent of the total actual cost of plant and machinery, than in that case depreciation should not be provided at 100% of actual cost of such asset. The rates of depreciation applicable to such items shall be the rate as specified in Schedule XIV. It is to be noted that Note 4 to Schedule XIV requires inter alia where during any financial year any addition has been made to any assets, the depreciation on such assets should be calculated on a pro rata basis from the date of such addition. Since Note 8 to Schedule XIV prescribed the rate of depreciation of 100%, pro rata depreciation should be charged on addition of the said low value items of fixed assets also. However, the company can write off fully low value items on the consideration of materiality. Where such an accounting policy is followed by a company, the same should be properly disclosed in the accounts.