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

In March 2026, Kaveri Agro Ltd becomes entitled to a Rs 4,50,000 grant from the Central Government as compensation for losses it incurred in the year ended 31 March 2025. The accounts for 2024-25 were approved earlier. Under AS 12, how should the grant be treated?

The grant is recognised in the income statement of the period in which it becomes receivable, here 2025-26, as an extraordinary item if appropriate. It is not credited back to the earlier year, because it compensates past losses and becomes receivable only now.

  1. ARecognised in the income statement of 2024-25 by restating that year
  2. BRecognised in the income statement of the period in which it becomes receivable, as an extraordinary item if appropriateCorrect
  3. CSpread equally over the next five years on a systematic basis
  4. DIgnored until cash is actually received

Explanation

A grant receivable as compensation for expenses or losses of a previous period is recognised in the income statement of the period in which it becomes receivable, as an extraordinary item if appropriate. Here that is 2025-26, not the earlier year, so restating (option 1) is wrong. Deferring or waiting for cash is not prescribed.

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