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Financial Accounting · Accounting for Government Grants (AS 12)

Non-Monetary Grants, Refund and Disclosure under AS 12

Updated 10 October 2026 · Fact-checked

Under AS 12, a non-monetary asset given at a concessional rate is recorded at its acquisition cost; if given free, at a nominal value. A grant of the nature of promoters' contribution goes to capital reserve. A refundable promoters' grant reduces the capital reserve. Disclose the policy and the nature and extent of grants.

Understand Non-Monetary Grants, Refund and Disclosure

A government grant is assistance by government in cash or kind to an enterprise for past or future compliance with certain conditions. Assistance that cannot reasonably be valued, and dealings that look like normal trading with government, are excluded.

Grants are not always cash. Government may give land or other resources at a concessional rate. AS 12 says such grants are accounted for on the basis of their acquisition cost. If the asset is given free of cost, you record it at a nominal value. So a free plot goes into the books at, say, ₹1, not at market value.

Some grants are promoters' contribution. They are given with reference to the total investment in an undertaking, or as a contribution towards its total capital outlay (for example, a central investment subsidy scheme), and no repayment is ordinarily expected. These are credited to capital reserve. That reserve can be neither distributed as dividend nor treated as deferred income.

A grant may also arrive as compensation for expenses or losses of an earlier period. It is recognised in the income statement of the period in which it becomes receivable, as an extraordinary item if appropriate (see AS 5).

If a promoters'-contribution grant becomes refundable, in part or in full, because specified conditions are not met, the amount recoverable by government is reduced from the capital reserve. Finally, the financial statements must disclose the accounting policy and the nature and extent of grants.

Key rules to remember

Non-monetary grant at concessional rate
Asset recorded at acquisition cost (the concessional price actually paid)
AS 12 para 17. Do not record at market value.
Non-monetary grant free of cost
Asset recorded at nominal value
AS 12 para 17. Credit the same nominal amount to the grant or capital reserve as the question directs.
Promoters' contribution grant
Credit to Capital Reserve (not distributable as dividend, not deferred income)
Para 10.1. Applies when given for total investment or total capital outlay and no repayment is ordinarily expected.
Refund of promoters' contribution grant
Capital Reserve A/c Dr. ; To Government / Bank A/c
Para 11.4. The amount recoverable by government is reduced from capital reserve.
Grant for past expenses or losses
Recognise in income statement of the period it becomes receivable
Para 6.5. Extraordinary item if appropriate under AS 5.
Disclosures
(i) accounting policy including presentation method; (ii) nature and extent of grants recognised, including non-monetary grants at concessional rate or free
Para 12.1.

How to solve Non-Monetary Grants, Refund and Disclosure questions

Classify the grant first. The treatment follows its nature, so read the wording of the question carefully.

  1. 1Identify the form: cash, or non-monetary asset (land, resources) given free or at a concessional rate.
  2. 2For a non-monetary asset, record at acquisition cost if concessional, or at nominal value if free.
  3. 3Decide whether the grant is promoters' contribution: linked to total investment or capital outlay, with no repayment ordinarily expected. If yes, credit capital reserve.
  4. 4If the grant compensates past expenses or losses, credit the income statement of the period it becomes receivable.
  5. 5If a refund arises on a promoters' grant, debit capital reserve with the amount recoverable and credit the payable or bank.
  6. 6Show the balance sheet effect: capital reserve under shareholders' funds, reduced by any refund.
  7. 7Write the disclosure note: policy, method of presentation, nature and extent of grants.
  8. 8Pass journal entries with narration and show working for any balance of capital reserve.

Quickest way: Three-question classification

When to use it: Use in MCQs and short theory questions where you must pick the treatment fast.

  1. Is the asset free? Nominal value. Concessional? Acquisition cost.
  2. Is it for total capital outlay with no repayment expected? Capital reserve.
  3. Is a refund of that grant due? Debit capital reserve, not profit and loss.

Common mistakes in Non-Monetary Grants, Refund and Disclosure

  • Recording a free non-monetary asset at market value.

    Students link fair value with any asset received for nothing.

    Fix: AS 12 para 17 requires a nominal value for an asset given free of cost.

  • Recording a concessional-rate asset at its market value.

    Confusing it with a free asset.

    Fix: Use the acquisition cost, that is, the price actually paid at the concessional rate.

  • Charging a refund of a promoters' contribution grant to profit and loss.

    Students treat every refund as an expense.

    Fix: Para 11.4 reduces the capital reserve by the amount recoverable by government.

  • Treating promoters' contribution grants as deferred income or distributing them as dividend.

    Mixing it with the deferred income method for asset grants.

    Fix: Para 10.1 says capital reserve, neither distributable as dividend nor deferred income.

  • Crediting a grant for past losses to capital reserve.

    Assuming all grants are capital in nature.

    Fix: Recognise it in the income statement of the period it becomes receivable, as an extraordinary item if appropriate.

Worked examples

Example 1

Alpha Ltd received a plot of land free of cost from a State government to set up a factory in Gujarat. Market value of the plot is ₹50,00,000. Record it at nominal value of ₹1 and state the treatment.

Show the solution
  1. The asset is non-monetary and given free of cost.
  2. AS 12 para 17: record at a nominal value, not at market value.
  3. Entry: Land A/c Dr. ₹1; To Capital Reserve A/c ₹1 (grant treated as promoters' contribution for capital outlay, as the question states setting up of a factory).
  4. Disclose in the notes the nature and extent of the grant: land received free of cost, recorded at nominal value.

Answer: Land is recorded at ₹1, not ₹50,00,000, with a corresponding credit of ₹1, and the grant is disclosed in the notes.

Example 2

Beta Ltd received ₹40,00,000 under a central investment subsidy scheme, treated as promoters' contribution, and credited it to capital reserve. Capital reserve before this was ₹10,00,000. Government now demands refund of ₹15,00,000 as a specified condition was not fulfilled. Show the entries and the closing capital reserve.

Show the solution
  1. Receipt: Bank A/c Dr. ₹40,00,000; To Capital Reserve A/c ₹40,00,000.
  2. Capital reserve after receipt = ₹10,00,000 + ₹40,00,000 = ₹50,00,000.
  3. Refund recoverable is ₹15,00,000. Para 11.4: reduce from capital reserve.
  4. Entry: Capital Reserve A/c Dr. ₹15,00,000; To Government (Grant Refundable) A/c ₹15,00,000.
  5. On payment: Government A/c Dr. ₹15,00,000; To Bank A/c ₹15,00,000.
  6. Closing capital reserve = ₹50,00,000 − ₹15,00,000 = ₹35,00,000.

Answer: Capital reserve is reduced by ₹15,00,000 and stands at ₹35,00,000. No charge goes to profit and loss.

Exam tips

  • Memorise the two phrases: acquisition cost for concessional, nominal value for free.
  • In refund questions, state that the amount is reduced from capital reserve and cite the promoters' contribution nature.
  • For disclosure, write both parts: policy including presentation method, and nature and extent of grants.
  • Read whether the grant is for past losses; if so, take it to the income statement, not capital reserve.
  • In MCQs, watch for options that use market value or deferred income; these are traps.

Practice questions from Accounting for Government Grants (AS 12)

Non-Monetary Grants, Refund and Disclosure in other exams

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

Non-Monetary Grants, Refund and Disclosure: frequently asked questions

How is a refund of a government grant treated under AS 12?

For a grant of the nature of promoters' contribution, the amount recoverable by government is reduced from the capital reserve. This applies when it becomes refundable in part or in full on non-fulfilment of specified conditions.

At what value is a free non-monetary asset recorded?

At a nominal value. If the asset is given at a concessional rate, it is recorded at its acquisition cost.

What is a promoters' contribution grant?

It is a grant given with reference to the total investment in an undertaking or towards its total capital outlay, with no repayment ordinarily expected. It is treated as capital reserve.

What must be disclosed about government grants?

Disclose the accounting policy adopted, including the methods of presentation. Also disclose the nature and extent of grants recognised, including non-monetary grants at a concessional rate or free of cost.