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CMA Intermediate · Financial Accounting · Accounting for Government Grants (AS 12)

Himalaya Foods Ltd receives Rs 90,000 from a municipal corporation towards specific freight expenses. Freight of Rs 30,000 is incurred in each of the first three months of a financial year, and the grant is received in month 1. What grant income is recognised in month 2 under AS 12?

Rs 30,000 is recognised in month 2. The grant relates to specific freight expenses, so it is taken to income in the same period as those expenses, which are Rs 30,000 per month. Recognising on receipt would be a receipts basis, not allowed.

  1. ANil, since cash was received in month 1
  2. BRs 90,000
  3. CRs 30,000Correct
  4. DRs 60,000

Explanation

Grants in recognition of specific expenses are taken to income in the same period as the expenses. Expense in month 2 is Rs 30,000, and the grant covers all Rs 90,000 of freight, so Rs 30,000 is recognised in month 2. Rs 60,000 would be the cumulative amount to month 2, not the amount for month 2 alone.

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