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

Kaveri Pharma Ltd purchased machinery on 1 April 2024 for Rs 50,00,000 (life 5 years, nil residual value, straight-line). It received a government grant of Rs 10,00,000 towards this machinery and treated it as deferred income, recognised in profit and loss over the asset's life in proportion to depreciation. What is the net charge to profit and loss for the year ended 31 March 2025 in respect of this machinery (depreciation less grant income)?

The net charge is Rs 8,00,000. Depreciation on Rs 50,00,000 over 5 years is Rs 10,00,000, while one-fifth of the Rs 10,00,000 deferred grant, Rs 2,00,000, is credited to profit and loss, leaving Rs 8,00,000.

  1. ARs 8,00,000Correct
  2. BRs 10,00,000
  3. CRs 12,00,000
  4. DRs 2,00,000

Explanation

Depreciation = 50,00,000/5 = 10,00,000. Grant credited = 10,00,000 x (10,00,000/50,00,000) = 2,00,000, i.e. 10,00,000/5. Net charge = 10,00,000 - 2,00,000 = Rs 8,00,000. Rs 10,00,000 ignores the grant income.

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