A HOT story on the Web is about a report that Which? (www.which.co.uk) has posted about car depreciation in the UK, according to which Nissan Primera 1.8 SX in the large category loses 74 per cent in three years, while Hyundai Accent 1.3 CDX, and Suzuki Alto 1.1 GL, lose 74 and 76 percentage respectively, in the medium and super-mini categories.

The discussion is not depreciation as tax law stipulates, but percentage values that experts predict a car will lose over time.

So, to know what our tax and company laws say on the subject I hurriedly look for a book, and what catches my eye is Depreciation & Losses by T. N. Manoharan, published by Bombay Chartered Accountants' Society (www.bcasonline.org). Rates of depreciation prescribed in fiscal law may not relate to the usefulness of the asset, points out the author. Thus, the written-down value that shows in the books, as in the case of the above cars, may not translate as realisable value in the market.

Manoharan clarifies the provisions through many solved problems. Jagan Co is one such. The company uses its lorries for transportation of goods manufactured by it, and when there is no load to carry, the lorries are hired for carrying others' load. Question: What rate of depreciation can Jagan claim?

Another query is about rigs and compressors mounted on a lorry, where you'd know that what are mounted cannot be called part of lorry. Yet another poser is from a theatre owner who built the cinema hall using borrowed funds. He wants to know, not which movie to screen next, but if he can capitalise the interest paid up to the date of putting the theatre into use.

Read this to appreciate your knowledge of depreciation.

In the company of governance

FOR many, it should be depressing to read that Florencio Lopez-de-Silanes, a tenured professor in Yale School of Management has resigned "after allegations of expense-account abuse and financial misconduct," as www.yaledailynews.com reports. Silanes had moved from Harvard's Kennedy School of Government to become the director of the SOM's International Institute for Global Governance that opened in 2001, and the charge against him is that he "double-billed the University for about $150,000 in business travel expenses in his three years as director of the institute." Wryly, http://msnbc.msn.com notes that one of the working papers that Silanes co-authored was titled, Theft Technologies.

The Prof's site (http://mba.yale.edu/faculty/professors/lopez.shtml) informs that he has worked as a consultant to the IMF and the World Bank on corporate governance issues, and been "an advisor to the governments of Russia, Peru, Malaysia, Egypt, Yemen, Colombia, Costa Rica and Mexico on issues of financial markets' regulation, corporate and bankruptcy law reform, industrial policy and privatisation." So, with great scepticism, I turn the pages of Corporate Governance, from The Institute of Company Secretaries of India (www.icsi.edu), a book on `modules of best practices'. The preface by the president of the ICSI begins with a flourish: "Corporate governance is the mechanism by which the values, principles, policies and procedures of a corporation are inculcated and manifested. The essence of corporate governance lies in promoting and maintaining integrity, transparency and accountability in the higher echelons of management."

One of the chapters in the book speaks of `model code' that lists desirable elements in disclosures. These include history of equity, human resource accounting, brand valuation, environmental protection measures, women's development, and so on.

Total shareholders' return or TSR is also among the recommendations; it is calculated "by deducting the open market capitalisation from the closing market capitalisation and then adding the dividend outgo to it," and the gain, if any, is expressed as a percentage of the opening market cap.

A book that can offer a favourable GKR, that is, governance knowledge return.

Circulars to go around

"RECENTLY it came to the notice of the Government that a firm of stock brokers, who were acting as underwriters to the issue of capital by a company, had issued an undated and unsigned circular which contained statements which materially differed and were contrary to the terms under which the issue was sanctioned by the Controller of Capital Issues.

"This action on the part of the firm was also within the mischief of the penal provisions of the Companies Act relating to the offer and sale of shares. The Government desires to observe that the stockbrokers with their specialised knowledge of company matters are expected to maintain a strict code of conduct.

This is the text of a fifty-year-old circular that finds a place in Circulars & Clarifications on Company Law, from Taxmann (www.taxmann.com). The arrangement is section-wise, and to help thumbing through, there is a subject index, using which I spot a 1972 Circular Letter on the signing of audit reports. It decries the then prevailing practice of signing in `firm name' and making "a separate disclosure to the Registrar about the identity of the partner".

It mandates, "The partner concerned should invariably sign in his own hand for and on behalf of the firm appointed to audit a company's accounts." Useful reference material.

BooksOfAccount@TheHindu.co.in

(This article was published in the Business Line print edition dated January 13, 2005)
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