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CMA Intermediate · Financial Accounting · Property, Plant and Equipment (AS 10)

Kaveri Engineering acquires equipment at a cost determined under AS 10 of ₹50,00,000. It receives a government grant of ₹10,00,000 relating to this equipment, accounted for under AS 12 by reducing the asset's carrying amount. Later, the company decides to depreciate the asset over 10 years straight line with nil residual value. What is the annual depreciation charge, assuming the grant is deducted from the asset?

Annual depreciation is ₹4,00,000. When the government grant of ₹10,00,000 is deducted from the asset's carrying amount as AS 10 permits under AS 12, the depreciable amount is ₹40,00,000, which spread over ten years straight line with nil residual value gives ₹4,00,000.

  1. A₹5,00,000
  2. B₹4,00,000Correct
  3. C₹6,00,000
  4. D₹4,50,000

Explanation

AS 10 allows the carrying amount to be reduced by government grants under AS 12. Net amount is 50,00,000 − 10,00,000 = ₹40,00,000. Dividing by 10 years gives ₹4,00,000. The ₹5,00,000 option ignores the grant, while ₹6,00,000 wrongly adds it.

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