What is plant and machinery depreciation rate?

Plant and Machinery are the equipment attached to the earth that supports the manufacturing of the company or its operations. These are tangible non-current assets to the company and as a result, have a debit balance.

Depreciation is the decrease in the value of an asset that is spread over the expected life of the asset. Not depreciating an asset presents a false image of the company as the asset is recorded at a higher value and profit is overstated as depreciation expense is not provided for.

There are two ways that a company provide depreciation:

• By reducing the balance of an asset in the Asset Account by passing a journal entry.
• By maintaining a separate account for depreciation called Accumulated Depreciation A/c. The nature of this account is naturally credit since it is created to reduce the value of an asset.

For most of the depreciation methods, we need a rate to provide for depreciation every year. Now, for accounting purposes, the management can use a rate they think is suitable depending on the use and expected life of the machinery.

Depreciation is calculated on the basis of the Companies act, 2013 for the purpose of book-keeping. According to Schedule 2 of the Companies Act, depreciation on plant and machinery is calculated on the basis of either SLM or WDV.

Plant and machinery for those special rates are not assigned useful life is considered to be 15 years and depreciation is calculated @ 18.10% on WDV and @6.33% on SLM.

According to the Income Tax Act, 15% depreciation is provided every year on Plant and Machinery and, an additional 20% depreciation is provided in the first year of installation of machinery.

Depreciation on Machinery is charged on the basis of usage of such machinery. if it is used for 180 days or more then full depreciation is allowed and if it is used for less than 180 days then only 50% depreciation is allowed.