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

Godavari Power Ltd received a grant of ₹9,00,000 as compensation for expenses already incurred in a previous year on flood relief, with no future related costs. The grant became receivable on 15 February 2026 in the year ended 31 March 2026. What is the correct treatment as per AS 12?

The grant should be recognised as income in the year it becomes receivable, that is the year ended 31 March 2026. AS 12 requires grants compensating for expenses already incurred, with no future related costs, to be taken to income immediately, with disclosure if material.

  1. ACredit to capital reserve
  2. BDeduct from fixed assets
  3. CDefer and recognise over the next three years
  4. DRecognise as income in the year it becomes receivable, with separate disclosure if materialCorrect

Explanation

AS 12 states that a grant receivable as compensation for expenses or losses already incurred, or for immediate financial support with no future related costs, is recognised as income of the period in which it becomes receivable, and shown as an extraordinary item if appropriate. Deferral is not permitted since no future costs relate to it.

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