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2007 (2) TMI 627 - SUPREME COURTWhether on the facts and circumstances of the case DERC was right in reducing the rate of depreciation from 6.69% to 3.75%? Held that:- there is no merit in this civil appeal. Firstly, accounting for costs differs according to the object and the purpose for which the exercise is undertaken. Depreciation is Allocation of Costs so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset(s). Depreciation includes amortization of assets whose useful life is pre-determined. It includes depletion of resources through the process of use. Depreciation in Commercial Accounting differs from depreciation in Tax Accounting. In this case, we are concerned with Electricity Accounting. An asset is recognized in the Balance Sheet when one expects economic benefits associated with it to flow in future over a period of years. Accordingly, the asset has a cost or value that can be measured. Matching of revenue and expenses is an important exercise under Accounting. Depreciation is a part of this exercise. DERC was not entitled to derive the rate from the fair life of the asset, particularly, when the consequence was to reduce the ARP substantially. In conclusion, we reiterate that in the present case because of inflation, we have to go by the Cost of Replacement instead of Historical Cost. However, we state that our judgment is confined to the facts of the present case alone and the reasoning given hereinabove is in the context of the period of 5 years. This judgment should not be construed to apply for all times. It is confined to the transition period only. This civil appeal preferred by DERC stands dismissed
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