Depreciation testing means independently recomputing the charge for a sample of assets — using the asset's cost, date put to use, and the useful life and method the company has adopted — and comparing the result to what was actually booked. It also means checking that the useful lives management has chosen are consistent with Schedule II to the Companies Act, 2013, or are supported by a technical justification where they differ, and that mid-year additions and disposals have been pro-rated for the days or months actually in use rather than charged for a full period.
Why recomputation, not just a reconciliation
Tying the depreciation charge in the P&L to the movement in accumulated depreciation in the fixed asset register proves the two numbers are consistent with each other. It does not prove either one is correct, because both can be wrong in the same way — most often because the register's own formula carries forward a useful life or a rate that was never updated when Schedule II changed, or because a spreadsheet formula references the wrong useful-life column after a row was inserted. Recomputation from first principles, on a sample, is the only procedure that catches this.
Useful lives: Schedule II as the starting point
Schedule II to the Companies Act, 2013 sets indicative useful lives for defined classes of assets, in place of the straight-line rates the earlier Schedule XIV prescribed. A company is entitled to use a different useful life if it discloses the justification in the financial statements, but 'different' has to be supported by something concrete — the actual operating pattern of the asset, double or triple shift usage, or a technical assessment — not simply a preference for a lower depreciation charge.
| Asset class | Schedule II indicative life | What to check |
|---|---|---|
| General plant and machinery (not specified separately) | 15 years | Whether the class genuinely falls under the general category or one of the specified categories carrying a different life |
| Continuous process plant | 8 years | Whether the plant is actually certified or operated as continuous process — this classification is sometimes claimed without support |
| Computers and data processing units — servers and end-user devices | 6 years / 3 years respectively | Servers and end-user devices carry different lives under Schedule II; a single blended life applied to the whole computer block is a common error |
| Furniture and fittings | 10 years | Consistency with the life used in the prior year, and whether a change has been disclosed if the life was revised |
| Motor vehicles | 8 years (6 years for vehicles for hire) | Whether any vehicles used for hire or in a fleet business are carrying the standard life instead of the shorter one |
| Double/triple shift assets | Addition to the normal life as specified in Schedule II | Whether shift usage is documented and the addition has actually been applied rather than assumed away |
Regulatory requirement
Schedule II permits a useful life different from its indicative figures only where the company discloses the justification for the difference in the financial statements. An auditor should expect to see that disclosure, and to see a basis behind it, before accepting a materially longer life than the Schedule suggests.
The recomputation procedure
- 01Select the sampleCover each major asset class and weight the selection toward large-value items, items added or disposed during the year, and any class where the useful life differs from Schedule II or changed from the prior year.
- 02Pull the inputs independentlyCost, date put to use, useful life, method (straight-line or written-down value), and residual value assumed — straight from the register and the supporting invoice, not from the depreciation schedule the company has already prepared.
- 03Recompute the charge for the full yearFor an asset held the whole year, apply the formula independently: straight-line charge is (cost less residual value) divided by useful life; WDV charge is the opening WDV multiplied by the rate implied by the method and remaining life.
- 04Pro-rate additions and disposalsAn asset put to use partway through the year is depreciated only from the date it was ready for use, not from the date of invoice or the start of the year. The Companies Act basis for depreciation is usage, and Schedule II's rates are built around a full-year charge, so a mid-year addition needs a days-based or months-based pro-ration consistently applied. The same applies in reverse to an asset disposed mid-year — charge depreciation only up to the disposal date.
- 05Compare to the amount booked and investigate any differenceA small difference is often a rounding convention (days versus completed months). A difference that recurs across several assets in the same class usually means the register is using a stale rate or an incorrect date-put-to-use.
- 06Check assets depreciated below the residual value floorSchedule II requires that an asset not be depreciated below a residual value, commonly taken as a token percentage of cost unless a different figure is justified. Scan the register for assets carried at nil, which should not occur if the floor has been applied correctly.
Depreciating from the invoice date instead of the date the asset was actually put to use is one of the most common recomputation differences on a Tally-based client, because the accounting entry is usually posted on invoice receipt and the register inherits that date by default. For a large capital addition — a new machine commissioned weeks after delivery — this can materially overstate the year's depreciation charge.
Change in useful life or method: a change in estimate
Under Ind AS 8 / AS 5, a revision to an asset's useful life or depreciation method is a change in accounting estimate, applied prospectively from the period of change — never retrospectively, and never through a restatement of prior years. Test that any revision the company has made during the year has been applied this way, and that the effect on the current and future periods' depreciation charge is quantified and disclosed where material.
Regulatory requirement
A change in useful life or depreciation method is accounted for prospectively as a change in accounting estimate under Ind AS 8 (or AS 5 under the Companies (Accounting Standards) Rules). Its effect on the current period, and where practicable future periods, should be disclosed.
How we think about this
Recomputing a depreciation charge from cost, date, life and method is a calculation that should be run across every asset in the register, not sampled, precisely because it is the kind of arithmetic a model or a formula performs identically every time. The decision that still belongs to the audit team is judging whether a useful life different from Schedule II's indicative figures is genuinely supported — that is a question about the client's operations, not about the arithmetic.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Fixed assets & capexFixed asset register audit: completeness and accuracy checksWhat a fixed asset register must contain, how to tie it to the general ledger, and the gaps that quietly survive year after year if nobody checks for them.
- Fixed assets & capexCapex vs revenue expenditure: the audit testThe capitalisation criteria, the repairs-versus-improvement judgement calls that actually come up, and how to sample repairs and maintenance for misclassified capex.
- Fixed assets & capexImpairment testing for fixed assets: a practical approachThe impairment indicators that actually matter for a mid-market client, when a formal test is genuinely warranted, and how to test management's recoverable amount workings.
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