Shift depreciation calculation for Indian fixed assets
Shift depreciation is used when manufacturing companies have multiple production shifts for parts of the year. For example, a company can have one, two, or three shifts during high production season but only one shift during the rest of the year. This means that some fixed assets are used more often than normal during the high product season and they would experience greater depreciation during that time. Being able to adjust the fixed asset's depreciation rates higher makes sense if the fixed asset is active for more than one shift. You can adjust the depreciation using calculated depreciation that is unique to each shift.
You can calculate shift depreciation for fixed assets accordingly to The Indian Companies Act, 1956. Shift depreciation calculation can be activated in Depreciation profiles. Once the Shift depreciation option is selected in the depreciation profile, you can click Shift depreciation to define periods when shift depreciation calculation applies and the relevant percentages per shift.
Example
The example in this section shows how the number of days that an asset is used is calculated.
An asset is used from December 21, 2012, through March 31, 2013. Here is a breakdown of the days for each period in the fixed asset calendar:
- December 21, 2011, through December 31, 2011: 11 days
- January 1, 2012, through January 31, 2012: 31 days
- February 1, 2012, through February 29, 2012: 29 days
- March 1, 2012, through March 31, 2012: 31 days
Therefore, the total number of days that the asset is used is 102 (11 + 31 + 29 + 31).
Depreciation for non-working days
Depreciation for non-working days is calculated as single-shift depreciation.
- Single-shift depreciation is always calculated on a 365/365 basis. Double-shift and triple-shift depreciation are calculated on regular working days in a year (180 days for seasonal industries or 240 days for non-seasonal industries).
- The total number of working days for single shift, double shift, or triple shift in a period can't exceed the number of days that are defined in the ledger period.
- Depreciation for non-working days (calendar days in a period minus the days that are defined in a ledger period) is calculated as single-shift depreciation.
Shift depreciation formulas
The following table shows the various formulas that are used to calculate shift depreciation.
| Type of depreciation method | Type of industry | Number of working days for the industry | Formula |
|---|---|---|---|
| Straight-line percentage method | Seasonal | More than the number of days in the Min. working days for seasonal industries field on the Fixed assets parameters page | [(Cost of acquisition – Scrap value) × Percentage that is defined for the type of shift] × Number of days that the asset is used during the period ÷ Total number of working days in a year |
| Straight-line percentage method | Seasonal | Less than the number of days in the Min. working days for seasonal industries field on the Fixed assets parameters page | [(Cost of acquisition – Scrap value) × Percentage that is defined for the type of shift] × Number of days that the asset is used during the period ÷ Minimum number of working days for seasonal industries (180 days) |
| Straight-line percentage method | Non-seasonal | More than the number of days in the Min. working days for non-seasonal industries field on the Fixed assets parameters page | [(Cost of acquisition – Scrap value) × Percentage that is defined for the type of shift] × Number of days that the asset is used during the period ÷ Total number of working days in a year |
| Straight-line percentage method | Non-seasonal | Less than the number of days in the Min. working days for non-seasonal industries field on the Fixed assets parameters page | [(Cost of acquisition – Scrap value) × Percentage that is defined for the type of shift] × Number of days that the asset is used during the period ÷ Minimum number of working days for non-seasonal industries (240 days) |
| Reducing-balance method | Seasonal | More than the number of days in the Min. working days for seasonal industries field on the Fixed assets parameters page | [(Written-down value – Scrap value) × Percentage that is defined for the type of shift] × Number of days that the asset is used during the period ÷ Total number of working days in a year |
| Reducing-balance method | Seasonal | Less than the number of days in the Min. working days for seasonal industries field on the Fixed assets parameters page | [(Written-down value – Scrap value) × Percentage that is defined for the type of shift] × Number of days that the asset is used during the period ÷ Minimum number of working days for seasonal industries (180 days) |
| Reducing-balance method | Non-seasonal | More than the number of days in the Min. working days for non-seasonal industries field on the Fixed assets parameters page | [(Written-down value – Scrap value) × Percentage that is defined for the type of shift] × Number of days that the asset is used during the period ÷ Total number of working days in a year |
| Reducing-balance method | Non-seasonal | Less than the number of days in the Min. working days for non-seasonal industries field on the Fixed assets parameters page | [(Written-down value – Scrap value) × Percentage that is defined for the type of shift] × Number of days that the asset is used during the period ÷ Minimum number of working days for non-seasonal industries (240 days) |
| Straight-line percentage or Reducing-balance method | Seasonal or Non-seasonal | On the Value models page, select the Override fixed asset calendar days? check box, and specify the number of days in the Asset working days field. | [(Cost of acquisition or Written-down value – Scrap value) × Percentage that is defined for the type of shift] × Number of days that the asset is used during the period ÷ Asset working days |
Full depreciation is calculated if the value of an asset is less than or equal to the value that is specified in the Max. acquisition value to avail full depreciation field on the Fixed assets parameters page. In this case, the days that are specified in the Min. working days for seasonal industries field or the Min. working days for non-seasonal industries field aren't considered when depreciation is calculated.