Advanced Accounting · AS 12 Accounting for Government Grants

Presentation and Disclosure under AS 12 for Government Grants

Updated 4 October 2026 · Fact-checked

AS 12 presentation and disclosure tells you where grants appear in the financial statements. Capital grants are shown as a deduction from the asset or as deferred income. Revenue grants are credited to profit and loss or deducted from the related expense. You must also disclose the accounting policy, the nature and extent of grants, and unfulfilled conditions and contingencies.

Understand Presentation and Disclosure under AS 12

A government grant is help from the government in cash or kind, given for past or future compliance with certain conditions. Once you have decided when to recognise a grant, the next question is where to show it. That is presentation. Disclosure is the extra information you give so a reader can understand the numbers.

Presentation depends on the type of grant. A grant related to a depreciable fixed asset is shown in one of two ways. You can deduct it from the gross value of the asset to reach book value. Or you can show it as deferred income in the balance sheet and recognise it in profit and loss over the life of the asset, in proportion to depreciation. Under the deduction method, the grant reaches profit and loss through a lower depreciation charge.

A grant related to a non-depreciable asset, such as land, is credited to capital reserve. If the grant carries a condition that needs a charge on certain other assets or on the same asset, it is credited to income over the periods that bear the cost of meeting that obligation. Grants in the nature of promoters' contribution are credited to capital reserve and treated as part of shareholders' funds.

A grant related to revenue is shown in the statement of profit and loss. You may present it as a separate credit, such as 'Other income', or as a deduction from the related expense. Both methods are accepted. A grant given as immediate financial support, with no future related costs, is recognised as income of the period in which it becomes receivable. It may be shown as an extraordinary item if AS 5 applies.

Disclosure has three parts. First, the accounting policy adopted for grants, including the methods of presentation. Second, the nature and extent of grants recognised in the financial statements, including non-monetary grants given at a concessional rate or free of cost. Third, unfulfilled conditions and other contingencies attached to grants that have been recognised. A contingency is dealt with under AS 4 and AS 29 as relevant.

Key rules to remember

Grant related to a depreciable asset: deduction method: Book value of asset = Cost − Grant; Depreciation = (Cost − Grant) ÷ Life (straight line, nil residual value); Profit and loss gets the benefit through lower depreciation. Do not also credit the grant to income.
Grant related to a depreciable asset: deferred income method: Yearly credit to P&L = Grant × (Depreciation of the year ÷ Total depreciable amount over life); The asset stays at full cost. The unamortised grant is shown as deferred income in the balance sheet.
Grant related to a non-depreciable asset: Credit to Capital Reserve (if no conditions requiring other obligations); If a condition requires a charge or obligation, credit to income over the periods that bear the cost of that obligation.
Revenue grant: Credit to P&L as separate income or deduct from the related expense; Match the grant to the costs it is meant to compensate.
Disclosures required: (i) Accounting policy and presentation methods; (ii) nature and extent of grants recognised, including non-monetary grants; (iii) unfulfilled conditions and other contingencies; Learn these three as a list. They are asked directly.

How to solve Presentation and Disclosure under AS 12 questions

Use this method for any question on presenting or disclosing a grant. Decide the type of grant first, because the presentation follows from it.

1Read the facts and identify the grant: related to a depreciable asset, a non-depreciable asset, revenue, or promoters' contribution.
2Check whether recognition is allowed. There must be reasonable assurance that you will comply with the conditions and that the grant will be received.
3Choose the presentation: deduct from the asset, show as deferred income, credit to capital reserve, or credit to P&L.
4Do the calculation. For the deduction method, compute depreciation on cost less grant. For deferred income, spread the grant in proportion to depreciation.
5Show the balance sheet and P&L effect for the year, and the closing balances.
6State the disclosures: policy, nature and extent, and unfulfilled conditions or contingencies.
7Where the question mentions a refund or a contingency, apply the AS 12 or AS 4 and AS 29 treatment and say so in one line.

Quickest way: Type first, then place, then disclose

When to use it: Use this for MCQs and short written parts when time is tight.

MCQ: link each grant to its place. Depreciable asset: deduct from cost or deferred income. Land: capital reserve. Revenue: P&L credit or expense deduction.
Eliminate options that credit a capital grant fully to P&L in the year of receipt. That is wrong unless the grant is immediate support.
For written answers, put a one-line rule first, then the working, then the entry or extract.
Always add a closing line with the three disclosures. This earns easy marks.

Common mistakes in Presentation and Disclosure under AS 12

Crediting a grant for a depreciable asset fully to income in the year received.
Students treat every grant as income because cash comes in.
Fix: Spread it over the asset life through lower depreciation or deferred income, unless it is immediate support.
Depreciating the asset at full cost when the deduction method is used.
Students forget that the grant has reduced the book value.
Fix: Depreciation base is cost less grant under the deduction method.
Recording a deferred income and also deducting the grant from the asset.
Students mix up the two alternative methods.
Fix: Use only one method. Pick the one the question asks for.
Showing a grant for land as deferred income.
Students apply the depreciable asset rule to all assets.
Fix: Land does not depreciate, so credit capital reserve, unless a condition needs other obligations to be met.
Leaving out disclosures, or giving only the policy.
Students treat disclosure as optional once the working is done.
Fix: Write all three: policy, nature and extent, and unfulfilled conditions and contingencies.
Ignoring the contingency when a condition may not be met.
Students think a contingency only matters in AS 29.
Fix: Disclose unfulfilled conditions and contingencies attached to recognised grants, and apply the contingency standards for the rest.

Worked examples

Example 1

A company buys machinery for ₹50,00,000 with a useful life of 5 years and nil residual value, using straight line depreciation. It receives a government grant of ₹10,00,000 related to this machinery. Show the presentation for year 1 under (a) the deduction method and (b) the deferred income method.

Show the solution

Method (a): Book value = ₹50,00,000 − ₹10,00,000 = ₹40,00,000.
Depreciation for year 1 = ₹40,00,000 ÷ 5 = ₹8,00,000.
Closing book value at end of year 1 = ₹40,00,000 − ₹8,00,000 = ₹32,00,000. The machinery is shown at this figure net of the grant.
Method (b): The asset is at full cost of ₹50,00,000. Depreciation for year 1 = ₹50,00,000 ÷ 5 = ₹10,00,000.
Grant credited to P&L for year 1 = ₹10,00,000 × (₹10,00,000 ÷ ₹50,00,000) = ₹2,00,000.
Deferred income at end of year 1 = ₹10,00,000 − ₹2,00,000 = ₹8,00,000, shown in the balance sheet.
Net P&L charge is ₹10,00,000 − ₹2,00,000 = ₹8,00,000, same as in method (a).

Answer: Deduction method: depreciation ₹8,00,000; asset at ₹32,00,000. Deferred income method: depreciation ₹10,00,000; credit ₹2,00,000 to P&L; deferred income ₹8,00,000; asset at ₹40,00,000. The net effect on profit is ₹8,00,000 under both.

Example 2

A company received ₹6,00,000 from the government to meet the cost of employee training in the current year, and received a free plot of land with a fair value of ₹20,00,000 with no conditions. Explain the presentation and the disclosures needed.

Show the solution

The ₹6,00,000 is a revenue grant. It compensates a cost of the year.
Present it as a credit in the statement of profit and loss, for example under 'Other income', or deduct it from the training expense. Either is accepted. Be consistent.
The land is a non-monetary grant for a non-depreciable asset. It may be recorded at fair value of ₹20,00,000 or at a nominal value. The policy must be disclosed.
If recorded at fair value, credit ₹20,00,000 to capital reserve, since there are no conditions.
Disclose the accounting policy for grants and the presentation methods used.
Disclose the nature and extent of both grants, including the non-monetary grant of land.
Disclose any unfulfilled conditions or contingencies. Here there are none, so state that if relevant.

Answer: Revenue grant of ₹6,00,000 is credited to P&L as income or deducted from training cost. The land is recorded at fair value (or nominal value) with ₹20,00,000 credited to capital reserve if fair value is used. Disclose the policy, the nature and extent of both grants, and any unfulfilled conditions or contingencies.

Exam tips

Learn the three disclosures as a list. Questions often ask 'state the disclosures' for 2 to 3 marks.
In numerical questions, show both the balance sheet extract and the P&L effect. Step marks are given for each.
Read whether the question says 'deduct from the asset' or 'deferred income'. Use only that method.
Write the grant type in your first line. It shows the examiner your logic even if the arithmetic slips.
For MCQs, test the grant type against the place of presentation. Most options fail this check.

Practice questions from AS 12 Accounting for Government Grants

Presentation and Disclosure under AS 12 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Presentation and Disclosure under AS 12: frequently asked questions

How is a government grant for a fixed asset shown in the balance sheet under AS 12?

You can deduct it from the gross value of the asset to arrive at book value. Or you can show it as deferred income and recognise it in profit and loss over the asset life in proportion to depreciation. Use one method consistently.

Where is a revenue grant shown in the statement of profit and loss?

It is shown as a credit to the profit and loss statement, often under 'Other income'. It may also be deducted from the related expense. The aim is to match the grant with the costs it compensates.

What disclosures does AS 12 require?

You must disclose the accounting policy adopted for grants, including the presentation methods. You must also disclose the nature and extent of grants recognised, including non-monetary grants. Finally, disclose unfulfilled conditions and other contingencies linked to recognised grants.

How does AS 12 deal with a contingency related to a government grant?

A contingency may arise when a condition attached to a grant is not yet met. It is disclosed along with the grant. Whether anything beyond disclosure is needed follows the contingency rules in AS 4 and AS 29.