Fixed Assets and Depreciation in Banks Method of charging depreciation on fixed assets in banks differs from bank to bank also rates of depreciation are neither as per companies act nor as per income tax act Fixed assets comprise premises and other fied assets such as furniture and fixtures, motor vehicles, office equipment, computers, other intangible assets such as application software and ather computer software, etc Inthe case of most hanks, fixed assets can be purchased by the head office, regianal/zonal offices and branches up to the monetary celling specified (though purchase of land and buildings is usually centralised) far themselves as also for offices within their cortral Fixed assets, particularly furniture and fixture, consumer durables, etc. are provided by banks ta the staff and the accourt for the same is maintained at the office where the employee is posted. For disposal of fixed assets, powers are delegated to various levels in the bank As far as maintenance of records relating to fixed assets is cancemed, practices vary among hanks. In some banks, the offices acquiring the fixed assets have to maintain proper records including the provision of depreciation thereon whereas in case af some banks, the same is being done at Head Office. In such a case, the acquisitions, disposals, etc. are advised by the branchicther office concemed to the head office through the inter-branch accounting mechanism A variant of this practice involves the recording of depreciation by branches and other offices hased on the advice received from the head office. In recent times, some of the banks have installed Fixed Asset Management Software and the information relating to purchase, sale of fixed assets and depreciation thereon (in some cases) is accounted for with the help of such software This is usually done at a centralized HO level and reports are generated at branches and/or regional/Zonal offices The Third Schedule to the Banking Regulation Act, 1949 requires fixed assets to be classified inta two categories in the balance sheet, viz, Premises and Other Fixed Assets. The original cost of fixed assets as on 31st March of the preceding year, additions thereta and deductions therefrom CA, Mkesk Saran — Lucknow 1Acgittitin: during the year and total depreciation written off to date are to be disclosed in the financial statements. Na rates of depreciation an fixed assets have been prescribed by the Banking Regulation Act, 1949. The provisions of the Schedule il to the Companies Act, 2019, should, therefore, be kept in rind in this respect especially in so far as the banking companies are concerned : Banking Regulation Act, 1949 requires Reporting tepentory, that the auditor should examine whether the rates of depreciation are appropriate in the context of the expected useful lives of the respective fived assets. In respect of computers and cata arocessing equipments, REI has directed that depreciation should be provided over three year period. With respect to fixed assets held at foreign officesfbranches, deprecation is to be provded asper the regulations/norms of the respective countries Disposal Depreciation — 7 In tecent years, banks have incurred substantial expenditure on computer hardware and software. Computer hardware qualifies the definition of a ‘fixed asset’ as given in AS 10, "Accounting for Fied Assets’, Computer software that is essential for the functioning of the hardware (e.g operating system) can be cansidered an integral part of the related hardware. The expenditure incurred on acquisition and installation of the hardware (@s also on any systerns software considered to he an integral nart af the velated hardware) should he capitalised in accordance with the principles laid dawn in AS 10, "Accounting for Fixed Assets’, and depreciated aver the remaining useful life of the hardware. Hardware and software are susceptible to faster rate of technical obsolescence, hence the auditor must take into consideration this fact while verifying the provision far depreciation on these assets. The same, however, should not be depreciated for a period of more than three years. Depreciation on Fixed Assets As far as methad of charging of depreciation on fixed assets is concerned, oractices vary amnong hanks. Some banks are providing depreciation an computers for full year irresoective of date of addition. For other assets some banks are applying rates of companies act while some banks are using Income Tax 1981 rates. Some are using 182 days, some are using 160 days and some are using 30th Seo as the periad for providing half depreciation. Guidance Note on Audit of Banks 2016 of ICAI says “In respect of computers and data processing equipments, RBI has directed that depreciation should be provided aver three year period!” Accounting policy of different banks mention that deprecistion an computers and data processing equipments has been provided as per "Guidelines of RBI." One News item published in "The Hindu" dated Thursday, September 06, 2001 also says, “during 2000-01, the RBI directed that hanks depreciate computers added during the year over a three year period and also wanted to write off the balance which existed as of March 31,2000 under the head Computers aver the next three years.” Circular number RBI/2005-08/286 UBD. BPD. POB. Cir. No. 23 /12.05.001/2006-06 dated January 24, 2006 REI directed Chief Executive Officers of all Primary (Uroan) Ca-onerative Banks to “charge depreciation on computers on a straightline method at the rate of 33.23 per cent oer annum’ and also "to amortise the cost of the software over a three-year period by using straight- line method, i.e.@33.33% annually.” However, no such RBI guidelines are available for “Commercial Banks”, even though various banks are while disclosing policy on depreciation mentioning that they are providing depreciation on computers and data processing equiaments as per "RBI guidelines.” CA, Mulash Saran - Lucknow 2Extract of Accounting Policy (schedule-17) of the banks: {as per audited published Annual Report for FY 2013-14) State Bank of India Description of fixed _] Method of charging | Depreciation’ amortisation assets depreciation rate Computers & ATM Straight Line 33.33% every year Method Computer software ‘Straight Line 33.33% every year forming an integral part | Method of hardware Computer Software - 100% depreciated in the which does not form an year of acquisition integral part of hardware Assets given on ‘Straight Line At the rate prescribed under financial lease upto 31st | Method the Companies Act, March 2001 Other fixed assets Written down value | At the rate prescribed under method the Income-tax Rules, 1962 + In respect of assets acquired during the year for domestic operations, depreciation is charged for half a year in respect of assets used for up to 180 days and for the full year in respect of assets used for more than 180 days, except depreciation on computers and software, which is charged for the full year irrespective of the period for which the asset was put to use. * Items costing less than Rs. 1,000 each are charged off in the year of purchase. State Bank of Hyderabad + In respect of assets acquired during the year, depreciation is charged for half year in respect of assets used for up to 182 days and for the full year in respect of assets used for more than 182 days, except depreciation on computers/ATMs and software, which is charged for the full year irrespective of the period for which the asset was put to use. + The rates of depreciation and method of charging depreciation are as under : Description of fixed | Method of charging | Depreciation’ amortisation assets depreciation rate Computers /ATMS ‘SLM 33.33% every year ‘Computer software WOV 60% forming an integral part of hardware Computer Software - 100%, in the year of which does not form an acquisition integral part of hardware State Bank of Patiala + Depreciation on all assets, except computers, is provided for on diminishing balance method at the rates given below. Head Depreciation Rate A. Furniture & Fittings (Furniture of all kinds, 10% Electrical fittings including electrical wiring, switches, sockets, fans) B. Plant & Machinery(Photocopying machines, | 15% fax machines, Mobile phone hand sets, Air- conditioners, Refrigerators, Colour TVs, LCDs, Washing Machines, Typewriters etc.) CA. Mukesh Saran ~ Lucknow 3C.Vehicles 15% D. Premises a. Office Premises 10% b. Residential buildings 5% + Depreciation on Computers/ATMs is provided for at 33.33% on straight-line method. The cost of software acquired is capitalized under computers. However, the depreciation on the software, which does not constitute the integral part of the hardware, has been made at the rate of 60% in the first year and balance in next year thereby writing it off completely + Depreciation on additions to assets made up to 30th September of the year is provided for at full rates and on additions thereafter at 50% of the rates. However in case of Computers/ATMs, depreciation @33.33% on straight line method has been provided for the full year irrespective of date of purchase. No depreciation is provided on assets sold/discarded during the year. Allahabad Bank + Depreciation is provided on diminishing balance method at the rates and the manner prescribed in Schedule XIV of the Companies Act, 1956 except that in respect of ALPMs and Computers, where depreciation is provided on straight line method @ 33.33% as per guidelines of Reserve Bank of India. + Software for a computer that cannot operate without that specific software is an integral part of related hardware and is treated as fixed assets. Where the software is not an integral part of the related hardware, computer software is recognised as an Intangible Asset. + Computer software acquired from vendors is recognised as Intangible Asset only if the value /cost of the software is more than “10 Lakhs. Such intangible assets are amortised over its effective life subject to a maximum period of ten years. Andhra Bank + Depreciation on Premises and on other Fixed Assets except Computers and ATMs is Provided on written down value method at the rates specified in Schedule XIV of the Companies Act 1956. «The depreciation on Computers and other Peripherals is provided @ 33.33 % on straight line method + Depreciation on ATMs is provided on straight line method based on the estimated useful life of seven years. Bank of Baroda + Depreciation on Fixed Assets in India [other than those referred in Paragraph 9.3 and 9.4] is provided on the written down value method in accordance with Schedule XIV to the Companies Act, 1956, except in case of revalued assets, in respect of which higher depreciation is provided on the basis of estimated useful life of these revalued assets + 9.2 Depreciation on Fixed Assets outside India [other than those referred to in Para 9.3 below] is provided as per local laws or prevailing practices of the respective territories. * 9.3 Depreciation on Computers and Software forming an integral part of Computer Hardware, in and oustside India is provided on Straight Line Method at the rate of 33.33% paa., as per the guidelines of RBI. Computer software not forming part of an integral part of hardware is charged directly to Profit and Loss Account. 9.4 Depreciation on ATMs is provided on Straight Line Method at the rate of 20% p.a. 9.5 Depreciation on additions is provided for full year and no depreciation is provided in the year of sale / disposal Bank of India + Depreciation on assets is charged on the Written Down Value at the rates determined by the Bank, except in respect of computers where it is calculated on the Straight Line Method, at the rates prescribed by RBI CA. Mukesh Saran ~ Lucknow 4In respect of additions, depreciation is provided tor the full year, imespeciive of the date on which the assets were put to use whereas, depreciation is not provided in the year of sale/ disposal of an asset. © Depreciation on the revalued portion of assets is adjusted against the Revaluatian Reserve © Where the cost of land and building cannot be separately ascertzined, depreciation is provided on the composite cost, at the rate applicable to buildings: «Premium paid on leasehold land is amortised aver the periad of lease © Depreciation on assets in respect of darmestic operations are provided as under Particulars Rate of Depreciation Premises 50% Furniture, Fixtures, Electrical itings and 10.00% Equipments ‘Air-conditioning plants, etc_and business machines | 15.00% Motor cars, Vans & Motor cycles 20.00% ‘Computers and Computer Sorware forming EEREV] integral part of hardwsre ‘Computer Software, not forming integral part of | 100.00% hardware Canara Bank + Fixed Assets excluding Computers are depreciated under Written Down Value Method at the rates determined by the management cn the basis of estimeted useful life of the respective assets. As per the guidelines of Reserve Bank of India, depreciation on Corrputers is charged at 33.33% on Straight-Line Method «Depreciation on additions tn fixed/eased assets is charged for the full year irrespective of the cate of acquisition. No deprecation is provided in the year of sele/cisposal. Central Bank of india © Fixed Assets (other than computers which are depreciated on Straight Line Method) are deprecisted under Written Down Value Method!" Premises ‘At varying rates based on estimated life Fumiture, Lits, Safe Vaults 10% Vehicles 20% ‘Air conditioners, Coolers, Typewnters ete 15% Computers including Systems Software EERE (Application Software ic charged to the Revenue | 100% during the year of acquisition.) Depreciation on additions to essets, made upto 30th September is provided far the full year and on additions made thereafter, is provided for the half year. No depreciation is provided on assets sold befare 30th September and depreciation is provided! for the half yearfor assets sald after 31th Septerrher Corporation Bank © Depreciation is provided on the diminishing balance method from the date of addition excent in case af computers/ATMs and leasehold improvements where the straight-line method is used. The assets are depreciated at the rates prescribed in Schedule XIV to the Companies Act, 1956, except in the case ot computers, ATMs and leasehold CA, Mulash Saran - Lucknow 5improvements which are depreciated at the rate of 1/3rd per annum, 1/7th per annum and over the period of the lease respectively. + Depreciation on premises is provided for on composite cost, wherever the value of land and building is not separately identified. Dena Bank + Depreciation is charged on Written Down Value (W.D.V.) Method at the rates prescribed under the Income Tax Rules, 1962 except that the Computer Hardware purchased before 01.04.2000 are depreciated @ 25% pa. on W.D.V. Method and those purchased on or after 01.04.2000 are depreciated @ 33.33% on Straight Line Method, * Depreciation on additions to fixed assets made up to 30th September of the year is provided at full rate and on additions made thereafter, at half the rate. + Depreciation on assets sold/discarded during the year is charged upto the date of sale/discard. + Computer Software Expenses are considered as Intangible Assets and are amortized over a period of five years, which is considered as useful economic life of such assets. » Fixed Assets include Capital Work-in-Progress. Indian Bank + Depreciation on buildings (including cost of land wherever _inseparable/ not segregated) and other fixed assets (excluding items referred in 6.3 to 6.5) in India is provided for on the straight-line method at rates specified in Schedule XIV to the Companies Act, 1956 and at the Bank determined rates based on Residual Life in the case of "Re valued Assets". Depreciation relatable to re valued component is charged against revaluation reserve. + 63, Depreciation on computers (hardware and software) and Uninterrupted Power Supply Systems (UPS) is provided at the rate of 33.33% per annum on Straight Line Method (SLM). 6.4. The rate of depreciation on motor car is 20 % on straight line method 6.5. 100% depreciation is provided on all cell phones and on small value items costing up to Rs.5000/- . + Depreciation on fixed assets acquired on or before 30th September is charged at 100% of the prescribed rates and at 50% of the prescribed rates on the fixed assets acquired thereafter. No depreciation on the fixed assets is provided for in the year of sale / disposal. Indian Overseas Bank + Depreciation is provided on straight-line method at the rates considered appropriate by the Management as under: Premises 2.50%: Furniture 10% Electrical Installations, Vehicles & Office Equipments | 20% Computers 33.173 % Fire Extinguishers 100% + Depreciation is provided on Land and Building as a whole where separate costs are not ascertainable Oriental Bank of commerce * Depreciation on Fixed assets including premises where value of land is not separable (cther than those referred in para 6.5 given below), is provided on the Written Down Value at the rates prescribed in the Income Tax Rules, 1962. * 6.5 Depreciation on Computers and ATMs is provided on Straight line Method at the rate of 33.33% per annum as per the guidelines of RBI Computers softwares not forming an integral part of hardware is charged directly to Profit and Loss account. CA. Mukesh Saran ~ Lucknow 6* No depreciation is provided in the year of sale/ disposal. Deoreciation on additions during the period upto 180 days is provided for full year otherwise far half year Punjab & Sind Bank + Depreciation is provided for on Computers at 33.33%, on straight-line method, additions are depreciated for the full year irresnective of the date of addtion as per RBI guidelines + Other Fixed assets on written down value method at the rates prescribed by the Income Tax Act 1961; additions effected before 20th September are depreciated for full year and additions effected thereafter are ceprecicted for half year. + No depreciation is provided on assets sold/disposed of during the year. Punjab National Bank © Depreciation an assets (including land where value is not separable) are provided on straight-ine method based on estimated life of the asset. + Depreciation on assets has been provided at the rates furnished below- Building ~ Constructed an free hold land and on 250% leased land, where lease period is above 40 ears ~ Constructed on leased land where lease _| Over lease period period is below 40 years Furniture and fatures- Steel articles S00% Furniture and fixtures wooden articles 10% Mattresses 20% Mobile Phone Instruments 33.53% Marhinety, electrical and miscellaneous articles 15 00% Mator cars and cycles 15.00% Computers, ATMSand related tems 3.33% ‘Computer Application Sofware— intangible Assets - Upto 5,000 Charged to Revenue ~ Others 20.00% « Depreciation on fresh additions to assets olher than banks own premises is provided from the month in which the assets are put to use and in the case of assets solditisposed off during the year, up to the rranth preceding the menth in which itis sold cisposed off. » = The depreciation on bank's own premises existing at the close of the yearis charged for full year. The construction cast is depreciated only when the builcing is complete in all respects. UCO Bank + Depreciation on Premises (including cost of land wherever inseparable/not segregated) and other fixed assets (excepting computers incuding software and AC rnachine, Aguaquard, Refrigerator, Photo-copying machine, Fax machine, etc.) in India is provided on written down value method at the rates prescribed in Schedule XIV to the Companies Act, 1986. Deprecation on corrauters including software is provided at the rate of 22.33% on Straight Line Method in terms of REI quidelines end on AC machine, Aguaguard, Re'rigeratar, Phato-copying machine, Fax machine, etc. \s provided at the rate of 20% on Written Down Value (WOM) Method. Depreciation is provided at full rate cn additions made upto 30ti September and at half the rate on additions made thereafter CA, Mulash Saran - Lucknow 7* Fixed Assets items of small value, costing of 1000/- or less each, are charged off fully in the same quarter of purchase and items, costing 1001/- to 5000/- each, are depreciated at the rate of 100% in the same quarter of purchase. United Bank of India Software are capitalized with computers Depreciation on assets other than computers, ATMs and Software is provided for under written down value method, in the manner and as per the rates prescribed under Schedule XIV to the Companies Act, 1956. The rate is rounded off to next absolute number. Depreciation on the revalued portion of the assets is adjusted from Revaluation Reserve. © Depreciation on computers, Automatic Teller Mahchine (ATM) and software are provided on straight-line method @ 33.33% on pro-rata basis from the date of acquisition as per RBI guidelines Vijaya Bank + Fixed Assets (other than computers and software) are depreciated at the rates prescribed under the ‘Income Tax Rules’ on reducing balance method, including on the composite cost of certain properties, where it is not possible to segregate the land cost. Computers (including operating software) are depreciated on Straight Line Method at the rate of 33.23% per annum. Other software expenses, treated as intangible assets are amortized at 100% in the year of acquisition. Depreciation on additions to Fixed Asset during the financial year is provided at 100% of the rate of depreciation prescribed, if the asset is put to use for 180 days and above during the year and at 50% of the rate of depreciation prescribed, if the asset is put to use for less than 180 days during the year. No depreciation is provided in the year of sale/disposal of fixed assets. Ref: RBI Circular No.DBOD.No.BP.BC.82/21.04.018/2003-04, dated April 30, 2004. hhttp:/wwnw thehindu com/thehindu/200 1/09/06/stories/0606000) htm AE CA. Mukesh Saran (The author is a member of the Insitute. 4 Hee can be reached at sarnfeuaymail.com) CA, Mukesh Saran— Lucknow 8