The Tariff Authority for Major Ports has informed all port trusts that depreciation for tariff purposes would be worked out on the basis of replacement cost.
None of the port trusts use the replacement cost method for calculating depreciation. The straight line method is the most commonly used method. Authority officials said the method for arriving at the replacement cost would be notified to all the major ports soon. The tariffs, which would be based on this method, would also be notified.
Under this method, the economic life of an asset is ascertained The asset is then amortised over this life.
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Authority officials said while the asset could be depreciated over any time period, the authority would specify the formula to be adopted.
All vessel and cargo related tariff calculations would have to be based on this method. Depreciation forms a major portion of the fixed cost of ports.
The advantage of the replacement cost method over the straight line method is that there is a substantial depreciation reserve fund available for financing the replacement of the asset. Further, the tariff impact on the users may be minimal.
The officials said the specification of depreciation rates was one of the first steps that the authority would take to work out a common base of tariff items.
The replacement cost method would help the authority to introduce uniformly acceptable accounting practises in all the major ports