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

In March 2027, Kaveri Foods Ltd became entitled to a government grant of ₹6,00,000 as compensation for expenses it incurred and losses it suffered in the year ended 31 March 2026. The year ended 31 March 2027 is the current year. What is the correct AS 12 treatment?

The ₹6,00,000 is recognised in the profit and loss statement of the period in which it becomes receivable, here the year ended 31 March 2027, as an extraordinary item if appropriate. It compensates past expenses, so there are no future costs to match.

  1. ACredit ₹6,00,000 to the profit and loss statement of the year ended 31 March 2027, as an extraordinary item if appropriateCorrect
  2. BRestate the 2025-26 profit and loss statement by adding ₹6,00,000
  3. CSpread ₹6,00,000 over the next five years to match future costs
  4. DCredit ₹6,00,000 to capital reserve directly

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. That period is 2026-27. Spreading it forward has no related future costs to match.

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