Question ID :
44665
Query on Claiming Depreciation on Leased Land
We are a private limited company with a land lease from 2019 to 2037. We completed construction on this land in the financial year 2023-24 and began using the property within the same year.
*Depreciation Period:*
The Companies Act 2013 specifies a 30-year useful life for buildings, with depreciation rates of 9.5% (WDV) and 3.17% (SLM). However, our lease is only 18 years. Accordingly, we should depreciate the building over the balance period .What rate of depreciation should we adopt ?
*Change of Depreciation Method:*
We currently use the WDV method, which front-loads depreciation. We are considering switching to SLM to better match our business needs by spreading depreciation evenly over the asset's useful life. This change is justified because with SLM, the depreciation amount remains consistent each year. This approach will help manage the later years' burden of repairs, which would otherwise impact the P&L account more significantly under WDV.
Is it permissible to switch from WDV to SLM for this leased asset under these circumstances?
We seek guidance on ensuring compliance with regulations and aligning our accounting practices with our business needs.
Posted by
ADRSH HIREMATH
on
Jun 07, 2024
Filed Under
AUDIT
Method of Dep can be changed , it must be after proper resolution . Proper disclosure to be incorporate in financial statement stating the effect on financial due to change in method
Posted by
CA JEET REWRI on
Jun 17, 2024