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

Kaveri Pharma Ltd bought equipment for ₹50,00,000 and received a government grant of ₹10,00,000 related to it. The company presents the grant by deducting it from the asset's gross value. Useful life is 5 years, nil residual value, straight-line method. What is the depreciation charge for the first year?

Depreciation for the first year is ₹8,00,000. When a grant is deducted from the asset's book value, depreciation is charged on the reduced amount of ₹40,00,000 (₹50,00,000 less ₹10,00,000) over five years.

  1. A₹10,00,000
  2. B₹8,00,000Correct
  3. C₹12,00,000
  4. D₹2,00,000

Explanation

When the grant is deducted from the asset, the asset is shown at cost less grant = 50,00,000 - 10,00,000 = 40,00,000. Depreciation = 40,00,000/5 = 8,00,000. Using the gross cost gives 10,00,000, which ignores the deduction.

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