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

Kaveri Industries Ltd purchased machinery on 1 April 2024 for ₹50,00,000 and received a government grant of ₹10,00,000 related to this specific asset. The company follows the method of showing the grant as a deduction from the asset's book value. Useful life is 10 years, straight-line depreciation, nil residual value. What is the depreciation charge for the year ended 31 March 2025?

Depreciation is ₹4,00,000. When the grant is deducted from the asset, book value becomes ₹40,00,000 (₹50,00,000 less ₹10,00,000), and depreciation is charged on this reduced amount over 10 years. Using the gross cost of ₹50,00,000 would wrongly give ₹5,00,000.

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

Explanation

Under the deduction method the asset is shown at cost less grant: 50,00,000 - 10,00,000 = 40,00,000. Depreciation = 40,00,000 / 10 = ₹4,00,000. Charging on the gross cost gives ₹5,00,000, which ignores the grant deduction.

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