ABSTRACT

Objectives: The objectives are to analyse the concept of Component Accounting Approach, the changes in depreciation with respect to Companies Act 2013 with numerical examples and illustrations and the Industry impact of component accounting.

Research Methodology: The data has been collected from secondary sources of authentic websites, reports, journals and books. The study undertaken is Descriptive research. The study of the Schedule II and the Companies Act 2013 as a whole is theoretical in nature. The source includes a collection of Reports by competent Chartered Accountants and Committees as well as websites on the internet.

Findings: The Summary of Component Accounting is as follows.Under this approach, first split the fixed asset into various identifiable parts to the  extent possible. The identified parts are then grouped together if they have the same or similar useful  life. No need to identify and depreciate insignificant parts as separate components; rather,  they can be combined together in the remainder of the asset or with the principal asset. Identification of significant parts is a matter of judgment and decided on case-to-case  basis. Identification of separate parts of an asset and determination of their useful life is not  merely an accounting exercise; rather, it involves technical expertise. Hence, involve technical experts to determine the parts of an asset.  If the useful life of the component is lower than the useful life of the principal assets as per Schedule II, such lower useful should be used. In reverse scenario higher useful  life for a component can be used only when management intends to use the  component even after expiry of useful life for the principal asset.

Limitations: The research is descriptive in nature and an empirical analysis can be done in future. Also the scope of the theoretical study can be extended to Component Accounting as per Companies Act 2013.

Practical Implications: Mining and Construction: Assets in Mining and Construction industry include heavy duty trucks, vehicles, dozers, excavators, loaders & unloaders, tunnelling machinery, etc. These items will have to be broken in to their components. Commodity manufacturing Industry - Crude, Ore, Power: Various facilities that can be identified as first level components such as Water, treatment, Gas tapping, Conveyors, Turbines, Rooters, Shafts, Grids ,Ovens, Casters, Moulds, Furnaces, Rolling mills, etc. Shipping Industry: A modern ship includes a fair component of electronic and automatic control systems. Entities will have to carry out a detailed exercise and use its judgement for capitalising each component. Hotel Industry: A restaurant maintains a minimum stock of silverware and dishes. Any increase or decrease is accounted as consumption in profit and loss account. Moreover, Schedule XIV does not lay down any rate for depreciating such items and hence companies in India adopt inventory and consumption approach to account these items.

Originality and Value: The paper includes practical examples of organizations and numerical examples of the Sections of Component Accounting. It also includes Literature Review relating to component accounting. It highlights the differences between the treatment of depreciation as per Accounting Standards and IND AS.

Key Words: Cost, Component Accounting, Residual value, Shift, Useful life.