Depreciation under Schedule II & the PPE Note: A CA's Guide
By Sudheer Lokanadham, Chartered Accountant · Updated 29/06/2026 · 9 min read
Depreciation under Schedule II to the Companies Act, 2013 is the systematic allocation of an asset's depreciable amount over its useful life. Schedule II replaced the old rate-based Schedule XIV: instead of fixed percentages, a company spreads cost (less residual value) over the useful life prescribed for each asset class in Part C, using SLM, WDV or units of production — and presents the result in the Property, Plant and Equipment (PPE) note under Schedule III.
From rates to useful lives
Under the Companies Act, 1956, depreciation followed Schedule XIV, which gave fixed SLM and WDV rates for each class of asset. The Companies Act, 2013 scrapped that approach. Schedule II now governs depreciation and is built on the concept of useful life — the period over which an asset is expected to be available for use.
Two standards sit alongside Schedule II and should not be confused with it. AS-10 (Property, Plant and Equipment) governs the recognition and measurement of tangible assets — including the choice between the cost model and the revaluation model — while AS-26 governs intangible assets. Schedule II tells you over how long to depreciate; AS-10 tells you what goes into cost and how the asset is carried.
The depreciable amount and residual value
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The formula is simple:
- Depreciable amount = Cost (or other amount substituted for cost) − Residual value.
- Residual value is what the company expects to realise at the end of the asset's life. Under Schedule II it is normally not more than 5% of the original cost of the asset.
So a machine costing Rs 50 lakh with a 5% residual value has a depreciable amount of Rs 47.5 lakh, spread over its useful life. A company may adopt a residual value higher than 5% only if it can be justified, with disclosure in the notes.
Indicative useful lives (Part C)
Schedule II Part C prescribes an indicative useful life for each asset class. A company may adopt a different useful life or residual value if it is justified by technical advice, but it must then disclose the justification. Common lives include:
| Asset class | Useful life (years) |
|---|---|
| Buildings (other than factory, RCC frame structure) | 60 |
| Buildings (other than RCC frame structure) | 30 |
| General plant & machinery | 15 |
| Furniture & fittings | 10 |
| Office equipment | 5 |
| Computers — end-user devices (laptops, desktops) | 3 |
| Computers — servers & networks | 6 |
| Motor vehicles (motor cars, non-commercial use) | 8 |
Note the split within computers: end-user devices such as laptops and desktops run on a 3-year life, while servers and networks get 6 years. Getting these right matters because a wrong life flows straight into the depreciation charge and the closing net block.
Permitted methods of depreciation
Schedule II allows a company to charge depreciation using any of three methods, applied consistently:
- Straight Line Method (SLM) — the depreciable amount is spread evenly over the useful life.
- Written Down Value (WDV) — a fixed percentage is applied to the reducing carrying amount each year, so the charge is higher in early years.
- Units of Production — depreciation is charged in proportion to actual output, useful where wear is driven by usage rather than time.
Pro-rata depreciation
Depreciation is charged on a pro-rata basis — from the date the asset is available for use and up to the date of its sale or disposal. The trigger is readiness for intended use, not merely the invoice date. An asset bought mid-year is therefore depreciated only for the part of the year it was available, and an asset sold during the year is depreciated up to the disposal date.
How depreciation flows into the PPE note
Under Schedule III, Property, Plant and Equipment is not a single number on the balance sheet face — it is supported by a detailed schedule. For each class of asset, and for both the current and the previous year, the PPE note presents three blocks:
- Gross block — opening balance, additions during the year, disposals, and closing balance.
- Accumulated depreciation — opening balance, charge for the year, depreciation reversed on disposals, and closing balance.
- Net carrying amount — gross block closing less accumulated depreciation closing, shown for current and previous year.
The “charge for the year” column in the accumulated depreciation block is exactly the Schedule II depreciation computed above; the same figure feeds the depreciation and amortisation line in the Statement of Profit and Loss. The structure looks like this:
| Particulars | Plant & machinery | Furniture | Total |
|---|---|---|---|
| Gross block — opening | 500.00 | 40.00 | 540.00 |
| Additions | 60.00 | 10.00 | 70.00 |
| Disposals | (20.00) | — | (20.00) |
| Gross block — closing | 540.00 | 50.00 | 590.00 |
| Accumulated depreciation — opening | 150.00 | 12.00 | 162.00 |
| Charge for the year | 34.00 | 5.00 | 39.00 |
| On disposals | (8.00) | — | (8.00) |
| Accumulated depreciation — closing | 176.00 | 17.00 | 193.00 |
| Net carrying amount | 364.00 | 33.00 | 397.00 |
(Figures are illustrative, in Rs lakh.) The previous-year version of the same schedule sits alongside, since Schedule III requires a comparative column for every line.
Capital Work-in-Progress (CWIP)
Assets still under construction or not yet ready for use are not part of the PPE schedule above and are not depreciated — depreciation begins only once the asset is available for use. CWIP is shown separately on the balance sheet, and since the 2021 amendments it carries its own ageing schedule, bucketing the amount by how long each project has been in progress (less than 1 year, 1–2 years, 2–3 years, more than 3 years), with separate disclosure for projects that are overdue or whose cost has overrun.
Practical checklist for the PPE working
- Build an asset register by class, capturing cost, date available for use, and any significant components.
- Fix the useful life from Schedule II Part C — or document the technical justification for a different life.
- Set residual value (normally up to 5% of cost) and compute the depreciable amount.
- Apply the chosen method (SLM, WDV or units of production) consistently, pro-rata from the date available for use.
- Depreciate significant components separately where their life differs.
- Roll the figures into the gross block, accumulated depreciation and net block schedule, with a previous-year column.
- Present CWIP separately with its ageing schedule, and disclose method, useful lives and any departures in the notes.
Related guides
Frequently asked questions
What is Schedule II to the Companies Act, 2013?
Schedule II prescribes how companies charge depreciation on tangible assets. It replaced the old rate-based Schedule XIV of the Companies Act, 1956 with a useful-life based approach. Instead of fixed percentages, a company spreads an asset's depreciable amount over the useful life prescribed (or justified) for that asset class.
How is the useful life under Schedule II different from old depreciation rates?
Schedule XIV gave fixed SLM and WDV rates per asset. Schedule II instead gives an indicative useful life (in years) for each asset class in Part C, and the company derives the depreciation from that life. A company may use a different life or residual value if it is justified by technical advice, with disclosure in the notes.
What is residual value under Schedule II?
Residual value is the estimated amount the company expects to recover from an asset at the end of its useful life, net of disposal costs. Under Schedule II it is normally not more than 5% of the original cost of the asset. The depreciable amount is the cost less this residual value.
Is component accounting mandatory under Schedule II?
Yes. Where the cost of a part (component) of an asset is significant to the total cost and that part has a useful life different from the rest of the asset, the part must be depreciated separately over its own useful life. This is mandatory and is one of the biggest practical differences from the old regime.
What does the PPE note in the financial statements show?
The Property, Plant and Equipment note is a schedule presenting, for each class of asset and for both the current and previous year: the gross block (opening, additions, disposals, closing), accumulated depreciation (opening, charge for the year, on disposals, closing), and the net carrying amount. Capital Work-in-Progress is shown separately with an ageing schedule.
From when is depreciation charged on a new asset?
Depreciation is charged on a pro-rata basis from the date the asset is available for use, and up to the date it is sold or disposed of. It is not based on the purchase date or the date of installation alone, but on when the asset is ready for its intended use.
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