Free Cash Flow Valuation 187Schedule XIV of the Companies Act 1956
Schedule XIV of the Companies Act 1956 prescribes rates of depreciation for various classes of assets. An
extract from the same is shown in Exhibit 9.4. The Income Tax Act of 1961 prescribes rates of depreciation
for the computation of taxable income. The Act is amended by yearly Finance Acts that prescribe the rate to
be applied. An extract from the Finance Bill is shown in Exhibit 9.5.
Exhibit 9.4 Depreciation rates as per Schedule XIV
Single shift Double shift Triple shift
Nature of asset WDV SLM WDV SLM WDV SLM
1 A. Buildings 5 percent 1.63 percent — — — —
(other than factory
buildings)
B. Factory buildings 10 percent 3.34 percent — — — —
C. Temporary erection 100 percent 100 percent — — — —
- Plant & machinery
A. General rate 15 percent 5.15 percent 22.5 8.09 30 11.31
B. Special rate
as applicable - Furniture & fittings 10 percent 3.34 percent — — — —
(general rate) - Ships/Fishing vessels 27.05 percent 10 percent
Exhibit 9.5 Rates at which depreciation is admissible
Depreciation allowance as
Block of assets percentage of written down value
- Buildings for residential purpose 5
Buildings used as hotels 20
Temporary erections 100 - Furniture & fittings 10
Those used in hotels, etc. 15 - Machinery & plant 25
Pollution control equipment 40
Cogeneration systems 100
Salvage Value of Investment
The price at which fixed assets and working capital can be liquidated, called salvage value, should be estimated
and added to the last year’s cash flows. Excluding salvage value will under state the true NPV of the project.
In real life situations, it is difficult to extrapolate asset values far into the future. Typically advice from pro-
fessional estimators (engineering) is sought.
A subsidiary of BEL was setting up a black and white picture tube project in the early 1990s. The company
had estimated the salvage value of fixed assets and net working capital to be Rs 8 crore. The forecast of free
cash flows for the project is given here:
Year 012345678910
Cash flow (Rs) –1,410 128 180 389 365 342 307 288 268 248 227