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Simerpreet
SimerpreetCurious
In: 1. Financial Accounting > Depreciation & Amortization

Depreciation on software as per companies act?

Depreciation on software as per companies act?
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    1 Answer

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    1. Karan B.com and Pursuing ACCA
      2021-07-22T16:34:19+00:00Added an answer on July 22, 2021 at 4:34 pm
      This answer was edited.

      Software is not depreciated but amortized, as it is an intangible asset. As per companies act the useful life of software is 3 years. The treatment of depreciation is the same as computers. Following are the software depreciation rates as per the companies act:

      As of 2021

      Nature of Asset Useful Life Depreciation
      WDV SLM
      Servers and networks 6 years 39.30% 15.83%
      End-user devices such as desktops, laptops, etc. 3 years 63.16% 31.67%

      For example, XYZ Ltd purchased a new accounting software on 1 October for Rs.50,000. As per the Companies Act, the useful life of software is 3 years. Hence, the software will be amortized for 3 years and the company amortizes on the straight-line method.

      Amortization amount = 50,000*31.67%

      For full year = Rs.15,835

      As the software was purchased on 1 October hence it will be amortized for 6 months.

      For 6 months = 15,835*6/12

      = Rs.7,917.50

      Amortization is the same as depreciation. Hence, treatment will also be the same. The amortization amount will be transferred to the Profit & Loss A/c on the debit side as a non-cash expense.

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