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

Himalaya Foods Ltd received a non-monetary grant: government land with fair value Rs 90,00,000, allotted at a nominal price of Rs 1,00,000. The grant requires the company to construct a factory building costing Rs 60,00,000 on the land within 3 years. The building has a useful life of 20 years with nil residual value. The company records the land at fair value. Applying AS 12, what amount of grant income is credited to profit and loss in the first year after the building is completed and used for the full year, assuming the grant is allocated over the building's life?

Rs 4,45,000 is credited in the first year. Recording the land at fair value of Rs 90,00,000 and paying Rs 1,00,000 gives a grant of Rs 89,00,000. Because it is conditional on building a structure, it is recognised over the building's 20-year life.

  1. ARs 4,45,000Correct
  2. BRs 4,50,000
  3. CRs 3,00,000
  4. DRs 2,97,000

Explanation

Land is recorded at fair value 90,00,000, so the grant element is 90,00,000 - 1,00,000 = 89,00,000 (nominal consideration paid is not a grant). Since the grant carries an obligation to build, it is credited to income over the 20 years of the building's life: 89,00,000/20 = Rs 4,45,000. Rs 4,50,000 ignores the nominal price paid.

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