Depreciation on software as per companies act?
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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
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.