 Let's have some session here, come on guys, one question for you, 5 minutes. One question, current cost is given, use your calculator, use your pen pencil, current standard cost of equipment is given, 120 and 1011. It was purchased in 2001, useful life 10 years, find the value in 1112 if life is 20 years, value first is 10 years, second question is if life is 20 years what will be value in 1112. I am again repeating, we are finding this equipment of 120. That is in which year, 1011, purchase long back in 2001 for how much we don't know, God knows it, its life was 10 years, estimated life, find the value in 1112, these are the rates, these are the rates available, value was 120, yes, anyone with a first answer, value will be 1 rupee, 1 rupee, okay, nail ticket done, what about the next, I am looking for both the answer, both the answer I am looking for it, next, first one is perfectly right, when the life is 10 years, then logically in 10 years it must have been depreciated fully, so in the books you can only show it 1 rupee, as a scrap value let's say, irrelevant, what about next, 1112, sir please sir, yes, 711 by 939, 711, 711, 711, right sir, divided by, that is 939, 939 into 120,000, into 120, yes, this is for the year, for the year 2013 40, 2000, 1340, okay, but question was not 1340, but you get, sir, sir, 3, 89 divided by, 711 into 1 lakh 20,000, right sir, it will be 65654 something, and it is 20 years, and in 10 years it will be 50 percent depreciated, okay, this is the value in 2000, 01, am I right, we are looking at the value of 2010, 11, depreciation 20 years, 65654 divide by sir, right, we need for almost 10 years, I am telling you, might be at present this is not useful because you guys are using bills, but guaranteed any time in the life you will find any such situation when you do not have a bill, relax, it does not mean that you do not show the asset, you show the asset, use your estimate, use inflation index and find the value, sir, for chocolate, I hope this was fine for everyone, next question, I have just added one point and this is a valid point, because crap usually take it, 6000, 6000 sir, come, check, okay, good, can I have the break up, break up, sir, 3272, 271 sir, can you give me the break up please, sir 65,054, okay, sir, into 5 percent, into 5 percent, that is the scrap value, million, why sir, life is 10 years, sir, sorry, sorry, sorry, sorry, sorry, sorry, when you charge a straight line depreciation, that is the formula, original cost is 65654, 3271 by 10, so in 10 years, you will charge only the depreciable amount and depreciable amount is always a cost minus crap, so guaranteed in 10 years, I agree, you will write off C minus S, but at least the logic is clear, everyone, please understand why I am just raising this, because you should know if rate is not given for any asset, please, please, never think that you cannot find out the rate, I will take 2, 3 minutes all to find out the rates, I am giving one more question, let us see, if I am telling you there is one query, one computer is purchased, right, let us suppose one equipment is there and they are not and that institute is not satisfied with the rates given, they are saying its scrap value will be 20 rupees and our cost price is 1000 and we hope to use this equipment for 15 years and we know, and we know it will be used in this way, double shift, triple shift in the first 2 years, 3 years and then goes down, goes down means now usage is more and slowly the use will be less, right method is the institute is asking you, there is one asset, one new equipment, its scrap value is 20, 15 years will be used, it will be used for 15 years and the cost is 1000, give me the rate of representation, 6 point, so can you please do it here, right sir, right sir, nice sir, nice sir, this is straight line, no, if we apply, if we apply a 6 point 5 percent, guaranteed last may 20, no, because I am raising this point a lot of times, lot of times you see that rate is not given and we write in our notes recount as rate is not given, note appears in charge, why why, you know the, you can estimate the life, you know the cost, you can find out, I am waiting for the rate, anyone can give me the rate, double chocolate for that, yes sir, 20 years, no, no sir, in WDV is what your value keep on decreasing, it will never be 0, the scrap has to be there sir, sir I can find out, I will do it, I will do it, I am raising this, I will do it in 2 minutes, in WDV what happens, if I am assuming first, if this is 10 percent you applied here, then next year you apply 10 percent this, I think in this way we do it, this means every year our base gets changed and when base gets changed it is known as compounding, there is a formula for this sir, it is a compounding and compounding I hope this formula all of us knows, it is given in AS6 illustrations, how to find out the rate, this everyone knows sir, amount is what future present, yes future, tell me here which one is the future part, which one is future 20, which one is current in depreciation value decreases, how many years, 15 years, you can solve this by excel, you can solve this by calcium also, simple trick, simple trick in calculator, just see, if I solve this 2 by 100, this is 0.02, 1 by 15, let me do it and this we have been using it in those asset, its rate is not written anywhere, a lot of assets, just see, 0.02, a simple trick, excel is written directly, excel is written directly from the lock, or using the power approach, if you want to show here, 0.02, a simple trick in calcium, root 12 times, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 12 times, no sir, this is a common trick, bring any number, common trick, minus 1, divide by that number which is in power, power may number is 15, I will write it also, I will write it, power may 15 number the, I have 14, I have 14 seconds, you have to write, plus 1, last step, into equal to 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 and 12, you get the value as 0.77, you get your rate, so rate you can calculate, I just want to put this, at least, if there is no rate, we can remove it, and this is not needed in calcium, you can notice we know the excel, it is very simple, if you want to know the trick, most welcome, root 12 times, minus 1, divide by that number, I hope rate is clear, I know all of you are more expert than me, my purpose was that at least, you can find out the rate, if there is no rate, do not take tension, you can remove it, this matter is allowed, normal approach, it is given in all the books, tell me here, another question for you, another question, as per AS6 and AS6 allows both the methods, remember do not go by WDV, AS6 allows both the methods, do not waste time in WDV, you can do by any method, that was, it was written there to go by WDV, reason company was saying, we will use higher earlier and reduce in the later years, this may as per AS6, 18% I want a rate 20% okay, one approach, one answer is, one answer is 20% okay done, it says AS6 is both, perfectly fine, one answer is 18% okay, 18% first let us check which one is right, if I applied 10 lakh, first year, second year, third year, fourth year, fifth year, if I apply 18, 1 lakh 80, 1 lakh 80, 180, 180 and 180, 2 lakh, 2 lakh, 2 lakh, in this scrap is 0, here scrap is 1, which one is the right method, number 1, because in this question scrap value was given, why I am raising this again and again, you must be thinking in new company's act, it is given that if scrap value is not given, assume 5%, assume 5%, now scrap value, you can easily assume it, your base, the problem generally arises to us because we do not have a base to justify it, now you have a base for scrap value, it is given 5%, what is the period of scrap value? scrap value is the life of your 5% assume, any period you assume 5% is the minimum scrap value to assume it, logically if you are thinking that after 2 years, you are disposing it off, certainly scrap value will be more, but again it all depends upon asset to asset, you are showing mobile phone as an asset, after 2 years I am telling you even you will not even get 10%, depending on the models, so that 5% is a minimum value which is given there, now there was yesterday one more query regarding the change of the method, these are the things which are given in your annual report regarding AS6, different organization, book received as gift are valued at selling price, so some organizations have valued the books at a selling price, then some have capitalized e-journals which depends upon the, I am not saying wrong or right, some are following an e-journal they are charging depreciation 40%, library books they are charging 10%, why I am just sharing because practices might be different, on addition full depreciation irrespective of the time period, irrespective of the time period, it means the asset which is written off on the books they are still showing you which is a good practice, because physically it is with you, asset created out of points where ownership is sponsored but used by organization, but no one was clear even I am not clear about this, there are lot of discussion on this, so let me check this point, some organizations are not even showing it as a 6 asset they are showing in the notes, but it is a good technique, some organizations are not charging depreciation of the assets, now you tell me which one is not appropriate, first one, selling price logic, then, second is it all depends upon the type of journal and the agreement which you have it, it all depends upon that, I am at least not satisfied with the on addition full depreciation, because at least you should go by the income tax rule 6 months or by the time based, otherwise if you charge full depreciation, then it means 1st April full, 31st March full which is wrong, cannot be, these are the main which you were asking yesterday, can we change the depreciation method any time, no, if you guys are following, let's suppose at present everyone is following SLM, and now you want to change it, you will have to justify why, who is saying is it is given in any accounting standards, no, let's suppose all of you are following company that depreciation, but now company that has been changed, you can immediately say yes, now I can change my method, because compliance of the law, law has been changed, earlier we were following company that, company that has been changed, new rates are there, new lives are there, you can change it, it is not a deviation, even auditor will allow this. Can any item which have been calculated on the, along with the value of the formula, and if that item has to be disposed of, can item be disposed of right of, written of, or sale of less than the depreciated, calculated value? Why not sir, why not? Sir, market value and the book are very different, why not take example computer, computer income tax is 60%, if I purchase 50,000 computer, rupees and 60% depreciation in one year, right, it means now the value is 20,000, but after one year 50,000 computer in the market, at least you can sell it for 32, 35,000, that will be profit, and this we were discussing, that profit which have got it from sale of the asset, is your income, is your income, so that is shown in your income expenditure account. Suppose the computer, let's say computer is purchased 10 year before some big machine, and that machines now we want to dispose because of have no values, no practical value, so and the depreciated, depreciation value when we will calculate let's say comes 10,000 rupees, but in the market no one even wish to take off even for 5,000 rupees, then how to write off that? There is no question sir, losses in the asset, simple, book value is 10,000, if anyone is purchasing for 2,000, right, then simple, I will take one more example for this, what you are saying? In my balance sheet when I purchase mobile let's say Blackberry earlier, I purchase for 25,000 rupees, when I purchase, it was purchased let's say 1st February, so I charge as per income tax rate 25%, so logically the value still should be this, after 6 months when I sold it and I exchange it for a new mobile, it was valued for only 5,000 rupees, take the iPhones, sir, I, so much of 5s name model I have, after 6 months you take it, you are purchasing for 50,000 rupees, but after 6 months I am telling you the market, it will not be even, no one will purchase even for 30,000, because a new model will be available, it's a loss, simple, expenditure account, follow me, yes madam, so I hope those reasons are very clear, so if you are changing any method, kindly refer this, kindly refer this, so whenever you are changing it, just mention about this change, it is given in AS 1, AS 6, AS 5, something given here, that's the column, change of depreciation is always change in accounting policy, now there was one more point, again I am not even reading presentation, I am just covering those discussion of AS 6, AS 10, which was asked in the break, there was one query, sir let's suppose, we have purchased a computer, for 100 rupees, and we were thinking that it, life is 5 years, right, we were thinking it's life is 5 years, we are using a SLM method, after 1 year, 2 year, 3 year, depreciation 20, 20, 20, book value 80, 60, 40, the query was sir, now, now if in this computer, I get new RAM, new hard disk, new screen, at an expenditure of let's say 120, it's a very common example, no one says to dispose of all the assets, if you can improve it then why not, at a lesser cost, jelly computer labs know that, now if you do it, the life, new life, new estimated life, we will let's say 10 years, new estimated life will be 10 years, what will be the depreciation for this, this was again a query during the break, 16, okay, first is 16, second option 32, 32, okay, that is the value addition in the depreciated asset, that's the value has become to 160, 20% depreciation on that asset, that comes to 32, what is the depreciation? Depreciation on 120 plus 160, 160, 160, so on 160 the depreciation at the rate of 20% that is given 32. Rate will not be 20% sir. How much sir? 16. How many of them is 16? 16. Sir, now the life has changed, you cannot charge this rate, now because life is what 10 years, now if you see, have I changed the method or have I changed the historical cost of the life? So whenever method is not changed, whenever only cost is changed, life is changed, scrap is changed, it is always known as change in accounting estimate, estimate is always from the date when it is changed. First thing, suppose when we edit when hardware can spin less after 3-4 years, then these item might have purchase of less than 5000 rupees for example. We will say these are the consumable item, we will not account for the main book value. Normally it is happening. You can read them as consumable when they are purchased not for specific asset. They are being purchased for a specific asset and therefore should be added to the cost of the asset. If you are charging it as expenditure, you are doing wrong because these have increased the life of the asset. So, how is that? How does that be? No, it will, then it is a normal expenditure. Then it is a normal expenditure. Good point, his point is if RAM, earlier RAM was not doing proper work and you just replace the same RAM. Then you have not increased the efficiency, you maintain the efficiency. But now when we replace we may opt for the higher RAM? Sir, if you are opting for the higher RAM, higher hard disk and guaranteed your efficiency can increase. Logically your life will be improved. Even market value can increase. Tell me a computer having a high RAM and you replace it with 3GB RAM. Definitely. When the value had increased, it become a capital expenditure. Your point 5, if you are just only replacing to maintain the same RAM. But when you are increasing it, it is always a capital expenditure. expenditure on the add-on, should it be booked on the book value or the then depreciated value? Value which is appearing in your balance sheet at a time. Value which is appearing is a 40. Sir, please. Efficiency is not increased, the but the life is increased due to replacement of that part then. It is a very very simple concept of revenue capital. If any expenditure which only maintains the same, maintains when you bought it, then you were guaranteed a life of one value. This will run for 5 years. This will run or this will give you that much average. I will take 4 or 5 examples here. One example. In front of you have a laptop. The RAM and GB example. If I have purchased a petrol car, I was given a guarantee, it will give an average of 12. I have replaced with CNG. Efficiency increases? Yes. Next example. I was having an AC. Whenever I purchase an AC, someone advised me, please replace the compressor. Efficiency may not increase but life will increase. Yes. Capital expenditure. Someone advised me, what do you do one thing in your house? You have all the ground floor. Please create one floor more. I guarantee the moment I create one floor it creates more space for me. Capital expenditure. So always whenever you remove an important part and an important part only it contains the same level which was earlier. Never a revenue. It has to improve something over and above the original asset. When I was buying a new asset, when you get something more then you call it capital expenditure. Otherwise it will never come. It means the capacity should also be increased? Suppose one decided to put the reversible wall in that so it becomes hot and cold. So it's life will decrease or efficiency will increase because one will enjoy the hot weather and the cold weather but life will decrease. Sir, life in CNG also decreases but CNG increases in your average. When you put a CNG gas cylinder in your car the life of the car gets reduced but because it increases the capacity, it's a major expenditure you always charge capital expenditure. You will be surprised no where the guidelines are given even only AR stands says if the efficiency gets increased capital. Sir, what do you think? It means efficiency as well as useful life both should be increased. Not both. Anything which is an improvement over the original. Anything which has an improvement over the original one. It's a capital and I always advise one thing never go by the amount. I was surprised to see one annual report was written because the amount is very very huge you are charging as a capital expenditure. No. Yesterday I took an example your auditor might be charging 3 lakh rupees and your furniture is hardly 100 rupees furniture will still be shown in the balance sheet but not the audit fees. Capacity is same but the life is increased then we can't capitalise. Life, efficiency, average, capacity at least some improvement should be there which was not earlier guaranteed. It was not original as Sir said in hot and cold it's not earlier and due to this he is feeling that atleast we are getting more benefit. Capitalise. A third is 20 lakh rupees. And suppose two year ago student theft in the library and they kept the book. Suppose physically we verify and it found that their stolen book price was originally 5 lakh rupees then what is the treatment for this? Let's take this example. Sir in the library books. Worth. 20 lakh rupees is not dead. Okay Sir. Right? Is it stolen? 5 lakh rupees. Before 3 years. But it means in this value already that 5 lakh is included? What? Originally when we bought the book we used to charge the deposit and new books were also available. I am telling you 5 lakh rupees. The stolen book was physically verified that some of the books were stolen. Suppose we calculate its original value then it is 5 lakh rupees. What is the treatment for this? Suppose the Board of Governors took the book as a write up then what will be the entry? Very simple. First thing on 31st March 14th let's suppose somewhere here some student has stolen it. And you are saying that you are not able to find out whether it was stolen or not. Physically verification was done later. It means in the year let's say 11. You are saying its value is 5 lakh. Agreed? Have you passed any entry in 11 for this? No. Because it's not dead. We actually found because we were done. It means physical verification was done here. Agreed sir? It means let's suppose it was for 30 lakh. You have charged a depreciation 3. That's a 3 here. And it's coming to be in the books 21 lakhs. Now his point is now during the physical verification after 3 years it was noticed that some books were stolen earlier. First of all I'm telling you during physical verification it will not be easy to find out when it was stolen. Because you are doing a physical verification in which year? 31st March 14th. Sir, I'm thinking I'm going very slowly. First thing it will be very tough to find out when it was stolen. I agree let's suppose Agreed? I agree I'm thinking it. Agreed done. Student has done on 31st March 11. Done. It means you have charged on 5 lakhs. Logically you should have charged on 15 lakhs. Right? Because sorry 25 lakhs 30 lakhs 10 percent 3, 3 and 3. Right? You are not able to identify after 3 years you came to no sorry on 5 lakhs we have charged extra amount. It means on 25 right sir? So logically if we were able to identify if we were able to identify we should have charged on 25 it means it means you have overstated by 1.5. It's a prior period item. The error which you will find out now. ES5 says and he's here he will be taking it. So the income or expense which arrives in the current period due to the error of the omission late to the earlier year is charged as a prior period. So in current year sir in your income expenditure account you will show that 1.5 extra charges are reversed. So logically the value of books should be increased. Entry will be if you want to go by the 1.1 and then this prior period will be closed income and expenditure. So in balance sheet your books will arrive at 22.5 and it will be charged as 1.5. You tell me sir are you satisfied or not? No sir. It's 1.5 lakh. What about the 5 lakh rupees? That too has to be charged. It will be charged this year if there is a loss. He has given me the value logically this 5 lakh rupees will be charged in loss for physical verification whether it is recoverable or not. I am only taking the entry for the depreciation difference. The entire 5 lakh during physical verification if it is a loss its entire part will be charged immediately to expenditure and subtract from the asset account. Okay let us change the query Sir if an asset is stolen before it is fully depreciated Please let's take an example Yes this is an example sir If an asset is stolen before it is fully depreciated Let's take any figure because it will be easier. Let it be 1,000 1,000 asset. Now an inquiry is initiated again as this was So in the meantime accounts are to be closed on 31st 31st March Done? This fixed asset has been stolen This fixed asset has been stolen Yes it is stolen Now enquiries initiated accounts are to be closed Decision has not been come whether it is to be treated as a loss or not because enquiry is not completed yet Should we show it in our balance or not? Should we wait for the So Okay And what a depreciation at the rate of 50,000 at the rate of 50,000 per year So my accumulated depreciation on stolen books is 1.5 lakhs So if we deduct 1.5 lakhs from 5 lakhs Detended value is 3.5 lakhs So the entry should be provision for depreciation debit 1.5 lakhs loss on sale of asset debit 3.5 lakhs and 2 books books will be out So from the gross block I am just writing up the asset and the loss will go to the income expenditure and provision for depreciation will be reduced by that extent I have only given the net effect otherwise yes when accumulated depreciation is prepared you transfer it from the ED account and the balance is charged as a loss When we always use to show the balance is gross block if you see even here the treatment which you are mentioning Actual loss is 5 lakhs I have not I have not passed the loss entry Actual loss is 3.5 lakhs 5 lakh is a book loss if you see I have reverse 1.5 lakhs gross block will be reduced by 5 lakhs What is the net effect comes I have not given the full entry sir's query was mainly for him otherwise yes if I go for the procedure it becomes a long procedure ED account, debit, everything what is discarded, demolished in scrap Now here sir had a query this is his reply then I will give the reply sir's reply was a question a question if 1000 is the asset in the month of February on 31st March balance sheet is to be finalized right sir and enquiry has been initiated now his query is whether we should show that asset in our books or not what is this sir sir in this again this is Anand's point just only brief it here it is again AS 29 AS 29 was the first time in the history of ICI they have defined what is provision what is liability what is contingent liability what is contingent asset now this asset logically has been stolen as it has been stolen before 31st March you already must have passed the entry of stolen guaranteed entire depreciation must have been debited so your entry let's suppose book value was 100 depreciation was 20 immediately you will charge the loss assuming it is a provision and you will show in the footnote AS per AS 29 the enquiry has been initiated in future let's suppose you get the asset back very good you reverse the entry there is a provision there is a change in estimate and change in estimate is allowed always allowed right sir MHRD has issued a circular that if an officer who has been allotted a laptop in case he resigns or he retires he can take that laptop to his home according to 15% SLM depreciation method but we normally use 60% WDV in case after allotment of laptop after one year he left the institute and he opted to take the laptop with him then how that profit is to be booked sir this point is also in income tax it is also in income tax in case of employee right in case of employee leaves and the employer gives the asset then logically the rates are given then calculate the book value so let's suppose again this query which sir has raised it anyone has face in practical life sir how do you do it an example sir let's suppose 100 rupees of computer in your books 60% of charge in your balance sheet you are showing 40 rupees now let's suppose I am the employee and I have taken this laptop at my home and as per the Ministry of HRD guidelines 15% 85 it means basically 45 rupees extra I will be paying you guys right then I will share my point how do you do it sir but he is saying Ministry of HRD guidelines I have no idea he is getting the laptop that depreciation it will cost 15% if you want to take it very simple logically your laptop will go 40 the moment it goes your accumulated depreciation will be debited now I am taking step by step sir so accumulated depreciation will be 60 you always record this at the cost because then your laptop will be 100 and your depreciation will be at 60 like a gross block gross block 100 will be 80-60 now you will recover cash what 45 rupees balance when you recover the cash how much extra you have recovered that has to be sir please which is 40 rupees only agreed you never show the net amount you always show a fixed as a schedule gross block 100 and depreciation 60 the point is this sir if you don't return the laptop how much amount is to be recovered I think he was asking that point only if you don't return logically that laptop in government body it is not possible to return it something has to be recovered that is the point he is asking how much recovery is to be made from him whether the 40 rupees to be recovered sorry I took it it was salary has to be deducted logically that this year man has to be deducted but if you ask me what is the depreciated value at present 40 rupees logically you should only cut 40 rupees but it is not permitted like that sir because the option to take the laptop is only after 5 years so and the accounting his point is 15% he went to 1 year old 15% is the rate of depreciation which is prescribed his point is that he took it only after 1 year exactly sir I am coming to that point that 15% rate is to be charged on laptop and after 5 years the employee has the option either to return the laptop or retain it at the book value now after 1 year the employee retains or employee doesn't return to the office and what is the amount whether the amount which is appearing in the books of account is to be recovered or 15% amount only is to be deducted 85 will be recovered not the book value 85 because this is the accounting treatment only which is given in the books of accounting 115 15 15 now here 16 this is as per the depreciation this is as per the Ministry of HRD you are saying after 5 years let's suppose employee after this remaining is scrap value doesn't return so logically 85 will be recovered 85 will be recovered 100% because we are not if recovery has to be done we are not concerned with the accounting part we are concerned with the MHRD same thing with the book because the employee waits otherwise some item of heritage value can be taken by the employee and the book value sir this is the point which is clear forget about the accounting practices in this the guidelines will have to be followed are you right are you saying a lot of queries because yes madam depreciated value cannot be a base to I don't think so it can be a base for considering this issue whether he should return I think this is only for accounting purpose not for custodian of the item or I think he if there is a provision a guideline that he can keep or return if he keeps then he has to pay the procurement price no madam it's not possible or should he pay the depreciated value of that procurement price if he has to pay he will never take it he will go for the market price if he has to pay the procured price 100 rupees why he will purchase second machine or the current market price whichever is left but not depreciated value that's only so I just want to see that what I am saying now as per the rules it's 15 rupees 15% return in the guidelines they are saying so as per that the lower value is 85 the market price must be 100 25 because how you find the lower value you always find the market price first of all AC I am purchasing from you I will first see what is the market price of the new AC I will see what is the price which is available in your books or maybe the depreciated rate compare it lower I will pay to you lower he will pay the lowest higher madam why I will pay higher if I have to pay higher I will take it I will come to you what I am just sharing with you what local government is doing it local government when the reforms are introduced it was clear instruction of the central government that if you do not prepare the accounts on double entry basis your grants will not be released so every year they used to take out the tenders for CA firms CA firms used to come in the month of February March take the trial from UP convert into acrolet entries and help you for 2 or 3 years and on the obtaining sir one thing I think you should stick together is the CSE and India chartered accountant of India because there are two opinion they are saying something you are saying something they are not actually this are not similar sir what I am saying I am saying as per the AS what they are saying primarily 2 or 3 people they are saying as per the practices they have been following till now the practices they have been following is not as per the accounting standards so logically deviation has to be there deviation has to be there there should be a understanding between you and the CSE sir sorry sorry difference difference should not be sir that CNDG task is a common body task has to be done by the MSE HRD slowly and gradually they are also following this AS if they would have followed AS tell me honestly how many of you have actually said to them by this rules AS sir they are mainly guided by their own government financial those they follow government financial they follow GFR you sometimes you sometimes we are telling them we prepared as per guidelines of AS we will have a break for tea then Anand will resume it