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CA Intermediate · Advanced Accounting · AS 12 Accounting for Government Grants

Anand Foods Ltd. received ₹5,00,000 from the government as an immediate financial support to compensate for losses already incurred in 2024-25, with no future related costs. The grant was received in 2025-26. Which treatment is correct under AS 12?

The grant is recognised as income in the period it becomes receivable, 2025-26, with suitable disclosure and extraordinary-item presentation if warranted. AS 12 treats grants compensating for losses already incurred or giving immediate support with no future costs as immediate income, not deferred.

  1. ACredit to capital reserve
  2. BRecognise as income in 2025-26 and disclose it, possibly as an extraordinary item if circumstances warrantCorrect
  3. CRecognise as deferred income over 5 years
  4. DDeduct from fixed assets

Explanation

A grant receivable as compensation for expenses or losses already incurred, or for immediate support with no future related costs, is recognised as income of the period in which it becomes receivable, with disclosure (extraordinary item if appropriate). Deferral applies only where there are related future costs.

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