Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Stocks

RCOM – The Depreciation change

One of the points I wrote in an earlier post (RCOM Shows You What’s Wrong With Corporate India: Veritas) was that RCOM had changed depreciation for telecom equipment from 10 years to 18 years. That bit is confirmed.

From the 2008-09 Annual Report:

image

From the 2009-10 Annual Report:

image

(What might help find this kind of issue is XBRL, where you can actually compare (if they choose to give such differences in XML instead of text!). But this was an interesting find – who depreciates ANYTHING over 18 years that has electronics in it? )

Wait, my mother has a TV that was bought in 1995, and it continues to work, though it’s been relegated to a room where it’s hardly used. Maybe I’m wrong, but I think there is cause for concern if RCOM believes it can actually keep telecom equipment for 18 years. Even 10 sounds zany.

Oh, and also, check out this declaration of accounting jugaad: (latest results)

image

(Their profit for the year was 1346 cr. so it’s not that big an impact there, but the revenue impact is 10%)

  • kora says:

    don’t understand the hue and cry around the depreciation for telecom equipment being 18 years incase of RCOM , for ex: Vodafone does state it in the range of 3-25 years , ATT states the Estimated total useful life in years which ranged from 23 to out 14 years in the last 5 years of balance sheets

    • The original article made the point that if they used 10 years, the profits would have been dramatically reduced. Even vodafone’s report says “Historically changes in useful lives and residual values have not resulted in material changes to the Group’s depreciation charge.” – which is the key when you change your useful life estimates for depreciation.
      There is a huge material difference for RCOM – according to Veritas, profits would be lesser by 70% (1377 cr instead of 5223 cr.) if they continued with the 10 yr.