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

Kaveri Industries Ltd. received a ₹12,00,000 grant in April 2025 for a plant costing ₹40,00,000 (depreciable over 8 years). The company treats the grant as deferred income. The plant was put to use on 1 April 2025. Following the straight-line method, what amount of grant will be credited to the Statement of Profit and Loss for the year ended 31 March 2026, and what is the deferred income balance at that date?

₹1,50,000 is credited to profit and loss and ₹10,50,000 remains as deferred income. The grant of ₹12,00,000 is spread over the 8-year life of the plant in line with depreciation, so one year releases ₹1,50,000.

  1. ACredit ₹1,50,000; balance ₹10,50,000Correct
  2. BCredit ₹1,20,000; balance ₹10,80,000
  3. CCredit ₹5,00,000; balance ₹7,00,000
  4. DCredit ₹1,50,000; balance ₹12,00,000

Explanation

The grant is recognised over the useful life in proportion to depreciation. With straight-line, 12,00,000 / 8 = ₹1,50,000 per year. Balance = 12,00,000 - 1,50,000 = ₹10,50,000. Option ₹1,20,000 wrongly uses 10 years.

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