1.27     Query

Disclosure of information regarding asset-wise depreciation in the balance sheet.

1.A public sector company, engaged in the manufacture of textiles, disclosed the following information regarding fixed assets and depreciation thereon in its balance sheet for the year ending 31.3.1987:

            (i) Original cost in the beginning of the year (as at 1.4.1986).

            (ii) Additions to the original cost during the year.

            (iii) Sales/adjustment to the original cost during the year.

            (iv) Original cost at the end of the year (as at 31.3.1986).

            (v) Accumulated depreciation up to 31.3.1987.

            (vi) Written down value at the end of the current year (as at 31.3.1987).

            (vii) Written down value at the end of the previous year (as at 31.3.1986).

2. The above information regarding fixed assets and depreciation thereon was disclosed separately for each category of fixed assets, such as, land, buildings, plant and machinery and furniture. The querist has stated that the company has consistently been disclosing the above information in separate schedules attached to its balance sheets for the past several years.

3. The Comptroller and Auditor General of India, after auditing the accounts for the year 1986-87, as required under Section 619(4) of the Companies Act, 1956, made the following comment in his report:

“Previous year’s figures in respect of cumulative depreciation under each asset were not mentioned in the schedule of fixed assets (Schedule-5). Depreciation on each asset during the year was also not shown.

Previous year’s figures in respect of each and every item of balance sheet are required to be shown as per instructions below Part I of Schedule VI of the Companies Act, 1956.”

4.The querist is, however, of the view that the presentation has been made correctly by the company in its annual accounts for the year ending 31.3.1987 and feels that the Audit should waive the point raised.

5. In the above context, the querist has sought the opinion of the Expert Advisory Committee as to whether the present accounting policy of the company is acceptable and, if not, what would be an acceptable practice.

                                                                          Opinion                                     October 6, 1988

1.The Committee notes that Instruction (e) given at the end of Part I of Schedule VI to the Companies Act, 1956, requires as follows:

“Depreciation written off or provided shall be allocated under the different asset heads and deducted in arriving at the value of Fixed Assets.”

2. The Committee also notes that Instruction (n) given at the end of Part I of Schedule VI to the Companies Act, 1956, requires as follows:

“Except in the case of the first balance-sheet laid before the company after the commencement of the Act, the corresponding amounts for the immediately preceding financial year for items shown in the balance-sheet shall be also given in the balance-sheet.”

3.The Committee further notes that the Accounting Standard No. 6 (AS-6) on ‘Depreciation Accounting’, issued by the Institute of Chartered Accountants of India, provides as follows:

            “The following information should be disclosed in the financial statements:

(i) the historical cost or other amount substituted for historical cost of each class of depreciable assets,

(ii) total depreciation for the period for each class of assets, and

(iii) the related accumulated depreciation.”

4. The Committee also notes the following decision of the Council as was published on page 30 of July, 1975, issue of ‘The Chartered Accountant’:

“Council desires that all members of the Institute must impress upon their clients the desirability of showing the amount of deduction on account of Depreciation “for the current year” separately in the Schedule of Fixed Assets forming part of the balance sheet”.

5. On the basis of the above, the opinion of the Expert Advisory Committee on the issues raised by the querist in para 4 of the query, is as below:

(i) The amount of depreciation provided on each class of asset for the current year should be disclosed separately in the Schedule of Fixed Assets forming part of the balance sheet.

(ii) Previous year’s figures in respect of cumulative depreciation for each class of asset should also be disclosed separately in the Schedule of Fixed Assets forming part of the balance sheet.

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