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

Himalaya Hotels Ltd received a government grant of ₹15,00,000 in the form of a transfer of a plot of land with a fair value of ₹15,00,000, with no conditions attached other than being used for the business. How should the grant be accounted under AS 12?

The land can be recorded at nominal value or at fair value, and if recorded at fair value the grant is credited to capital reserve. AS 12 treats grants in the form of non-monetary assets given free of conditions as capital in nature, so neither ignoring them nor crediting profit is correct.

  1. ARecognise the land at nominal value or at fair value, with the grant credited to capital reserve if at fair valueCorrect
  2. BRecognise the land at fair value and credit the entire amount to profit and loss immediately
  3. CIgnore the transaction as no cash is received
  4. DRecognise the land at fair value and deduct the grant from revenue reserves

Explanation

AS 12 permits non-monetary grants such as land to be accounted for either at fair value or at nominal value. With no obligations attached, a grant of a non-depreciable asset at fair value is credited to capital reserve. It is not ignored and not credited to profit and loss or revenue reserves.

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