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

Ganga Foods Ltd received a grant of Rs 12,00,000 on 1 April 2022 for a plant costing Rs 60,00,000 (life 10 years, nil residual, straight-line from that date). The grant was treated as deferred income. On 31 March 2025 the grant became refundable in full because of a condition breach. The company decides to refund Rs 12,00,000 on that date. The unamortised deferred income at that date is what, and what is the amount charged as an extraordinary item?

Unamortised deferred income is Rs 8,40,000 and Rs 3,60,000 is charged as an extraordinary item. Three years of amortisation at Rs 1,20,000 leave Rs 8,40,000, which is set off against the Rs 12,00,000 refund, with the excess charged to profit and loss.

  1. AUnamortised Rs 8,40,000; extraordinary charge Rs 3,60,000Correct
  2. BUnamortised Rs 8,40,000; extraordinary charge Rs 12,00,000
  3. CUnamortised Rs 9,60,000; extraordinary charge Rs 2,40,000
  4. DUnamortised Rs 12,00,000; extraordinary charge Nil

Explanation

Annual credit = 12,00,000/10 = 1,20,000. Three years credited = 3,60,000; unamortised = 8,40,000. On refund of a grant treated as deferred income, the refund is first applied against the unamortised balance and the excess is charged to profit and loss as an extraordinary item: 12,00,000 - 8,40,000 = 3,60,000. Charging the whole 12,00,000 ignores the deferred balance.

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