Skip to content

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

Anand Steels Ltd received land free of cost from a State Government. The land was valued by an approved valuer at ₹50,00,000 on the date of transfer. The grant carries no conditions, and the company nominal-value option is not used. How should the company record this under AS 12?

The land is recorded at its fair value of ₹50,00,000 with the credit going to capital reserve. A free non-monetary asset with no conditions is accounted at fair value, and because it is a capital-nature grant it is not taken to profit and loss.

  1. ARecord the land at its fair value of ₹50,00,000 with a credit to capital reserveCorrect
  2. BRecord the land at ₹1 and disclose
  3. CRecord the land at ₹50,00,000 with a credit to profit and loss as income
  4. DDo not record the land until sold

Explanation

AS 12 treats government grants in the form of non-monetary assets given free of cost at their acquisition cost, which is fair value here, and a grant with no conditions attached is credited to capital reserve. Crediting profit and loss would be wrong as it is a capital receipt.

Did you get it right without looking?

One question tells you little. A timed set on AS 12 Accounting for Government Grants shows your real accuracy, how long you take and where you lose marks.

Practise AS 12 Accounting for Government GrantsFree diagnostic mock

More AS 12 Accounting for Government Grants questions