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

Kaveri Pharma Ltd. received a grant of Rs 12,00,000 for a plant costing Rs 40,00,000, with the grant treated as deferred income. The plant has a 8-year life, nil residual value, straight-line depreciation. The grant is recognised in profit and loss over the life in proportion to depreciation. What is the net charge to profit and loss (depreciation less grant income) for one year?

The net charge is Rs 3,50,000. Annual depreciation of Rs 5,00,000 is partly offset by Rs 1,50,000 of deferred grant income released in proportion to depreciation, since the Rs 12,00,000 grant is spread over the same 8 years.

  1. ARs 3,50,000Correct
  2. BRs 5,00,000
  3. CRs 1,50,000
  4. DRs 3,00,000

Explanation

Depreciation = 40,00,000/8 = 5,00,000. Grant income recognised per year = 12,00,000/8 = 1,50,000. Net charge = 5,00,000 - 1,50,000 = Rs 3,50,000. Rs 5,00,000 ignores grant income.

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