Provisions of AS-06

AS-06, or Accounting Standard 6, is a financial reporting standard issued by the Institute of Chartered Accountants of India (ICAI). It provides guidance on the accounting treatment of depreciation and amortization. The provisions of AS-06 are as follows:

1. Basis for Depreciation:
- AS-06 provides guidelines for determining the basis on which depreciation is calculated. It states that depreciation should be based on the historical cost or other appropriate measurement bases of the asset.
- The standard provides various methods for calculating depreciation, including the straight-line method, written down value method, and the useful life method.

2. Depreciation Method:
- AS-06 requires entities to use a depreciation method that reflects the pattern in which the asset's economic benefits are expected to be consumed by the entity.
- The method chosen should be applied consistently from period to period, and any change in the method should be disclosed in the financial statements.

3. Useful Life:
- AS-06 provides guidance on estimating the useful life of an asset. The useful life represents the period over which the asset is expected to generate economic benefits for the entity.
- The standard requires entities to review the estimated useful life of assets at least at each financial year-end and make necessary adjustments if there is a significant change in the expected pattern of consumption of those benefits.

4. Residual Value:
- AS-06 defines residual value as the estimated amount that an entity would currently obtain from the disposal of an asset, after deducting the estimated costs of disposal.
- The standard requires entities to estimate the residual value of an asset at the time of acquisition and review it at least at each financial year-end.

5. Impairment:
- AS-06 provides guidance on the assessment of impairment of assets. It states that if there is an indication of impairment, an entity should estimate the recoverable amount of the asset and recognize an impairment loss if the carrying amount exceeds the recoverable amount.

6. Disclosure Requirements:
- AS-06 specifies the disclosure requirements related to depreciation and amortization. Entities are required to disclose the depreciation methods used, the useful lives of assets, the historical cost or other measurement bases, and any change in the method of depreciation.

7. Transition:
- AS-06 provides guidance on the transition from previous accounting policies to the requirements of the standard. It states that any change in accounting policy should be applied retrospectively unless it is impracticable to determine the period-specific effects of the change.

Overall, AS-06 aims to ensure that depreciation and amortization are accounted for in a consistent and reliable manner, providing relevant information to users of financial statements.