TREATEMENT OF GOVT.GRANT

[Asked by Guest]

Kindly guide regarding treatement of Govt Grant received for specific fixed assets(either depreciable or non depreciable) . if assets purchase in Year 2008 and grant is going to received after 3 year after fullfilling certain conditions, what will be treatement of the same?. if grant is chargable as an income, kindly specify in which year and under which section it will be chargable.

[CAGOPALJI AGRAWAL]

It seems that you have queried for grant of capital nature. Such grant is recognised at the time of reasonable assurance that the enterprise would comply with the conditions of the grant and the benefits have accrued and it is reasonable certain that ultimate collection will be made.

In case of capital nature of grant, either it is reduced from the cost of the concerned asset or treated as deffered revenue income in case of depreciable asset and credited to capital reserve in caseof non depreciable assets.

For detailed study, you may read the AS-12 available at the following link:

 

http://www.knowledgebible.com/forum/showthread.php/4590-12-Accounting-Standard-12-Accounting-for-Government-Grants-AS-12

AI Summary

Treatment of government grants: capital grants reduce asset cost or are recognised as deferred revenue or credited to capital reserve.
Capital government grants are recognised when reasonable assurance exists that conditions will be met and receipt is probable; they may reduce the asset's cost, be treated as deferred revenue recognised over the useful life for depreciable assets, or be credited to capital reserve for non-depreciable assets.