MahindrMahindra Is

8/9/2019 MahindrMahindra Is

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Depreciation Policy

Of

Mahindra and Mahindra

Submitted to: Submitted by:

Prof. A S Khalsa Harsha Chotrani(13)

Nidhi Singh (54)


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Introduction

Mahindra and Mahindra is the market leader in

multi-utility vehicles in India & Mahindra is the only

Indian company among the top three tractor

manufacturers in the world.

The Group has a leading presence in key sectors

of the Indian economy, including the financialservices, trade and logistics, automotivecomponents, information technology,infrastructure development.

With over 62 years of manufacturing experience,the Mahindra Group has built a strong base in

technology, engineering, marketing anddistribution which are key to its evolution as acustomer-centric organization.


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Depreciation Policy of M & M

The financial statements of the Mahindra and

Mahindra Company are prepared under historicalCost convention method which is in accordancewith the Generally Accepted Accounting Principles(GAAP) and is with the provisions of the IndianCompanies Act, 1956.

Depreciation on fixed assets is computed on theStraight Line Method,Over their estimated useful lives at the rates whichare higher than the rates prescribed underSchedule XIV of the Companies Act, 1956.Individual assets acquired for less than Rs.5,000 areentirely Depreciated in the period/year of

acquisition.

Fixed assets are stated at actual cost lessaccumulated depreciation.The actual cost capitalized includes material cost,freight, Installation cost, duties and taxes, financecharges and other incidental expenses incurred

during the construction/installation stage.The cost and the accumulated depreciation of fixedassets sold, retired or otherwise disposed off areremoved from the stated values


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and the resulting gains and losses are included inthe profit and loss Account.Costs of application software for internal use are

generally charged to revenue as incurred due to itsestimated useful lives being relatively short,usually less than one year.

Now the depreciation charged for past 5 years in M

& M can be compared as:

Depreciation

Mar09

291.51

Mar08

238.66

Mar07

209.59

Mar06

200.01

Mar05

184.0

From the above we can state that the depreciation

charged for the year excludes:

(a) An amount of Rs. 0.39 crores (2007: Rs. 0.43crores), representing Depreciation on the increasedue to revaluation of Land and Buildingstransferred from the Revaluation Reserve.

(b) An amount of Rs. 0.17 crores (2007: Rs. 0.03crores), representing depreciation on assets usedfor development work. This expenditure isTransferred to Development Expenditure and isappropriately amortized.


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The depreciation has its effect on fixed assets andalso on Equity which can be compared with past 5

years as:

Fixed assets: Mar09 Mar08 Mar07 Mar06 Mar05

Gross block 4,893.89 3,552.64 3,180.57 2,859.25 2,676.

Less :

revaluation

reserve

12.09 12.47 12.86 13.33 14.32


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Less :accumulated

depreciation

2,326.29 1,841.68 1,639.12 1,510.27 1,335.

Gross profit1,317.71 1,480.23 1,525.27 1,089.50 884.67

EPS (Rs)30.69 46.15 44.88 36.72 45.92


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i) Earnings per Share

The earnings considered in ascertaining theCompanys Earnings per Share (EPS) comprises thenet profit after tax (and includes the postTax effect of any extra ordinary items). Thenumber of shares used in Computing Basic EPS isthe weighted average number of shares outstandingduring the period / year.

Analysis:

From the annual report of M & M it can be statedthat Depreciation is initially as an expense and

then at later stage it is profit as it generateseconomic surplus. Method of depreciation isdetermined by the company. Various methods areused for depreciation.M&M follows Straight-line method. Method ofdepreciation is periodically reviewed by thecompany.Every balance sheet movement has both a negative

and positive impact on the cash flow statement

.For each account one of the movements (debit or

credit) generally make sense. For example, an


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increase in fixed assets is a negative cash flow. This

makes sense because one has probably paid cash

for new assets. Now by default, the opposite (in

this case a credit) must have the opposite impact.

So a credit to fixed assets would have a negative

impact.

But In the case of depreciation, there is actually no

impact at all since depreciation expense is added

back to the cash flow.

As periods of useful lives decrease the amount of

annual depreciation increases.

The Main factors that affect the revaluation ofassets are:- Inflation- National currency exchange rate- Drastic changes in market price

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