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

Kaveri Textiles Ltd. received a government grant of Rs 6,00,000 towards the cost of a machine costing Rs 30,00,000 with a useful life of 10 years and nil residual value. The grant is treated as a deduction from the asset's book value under AS 12. What is the depreciation charge for the first full year?

Depreciation is Rs 2,40,000. When a grant related to a depreciable asset is deducted from its cost, the asset is shown at Rs 24,00,000 and depreciation is charged on this reduced amount over 10 years, rather than on the full Rs 30,00,000 cost.

  1. ARs 2,40,000Correct
  2. BRs 3,00,000
  3. CRs 2,70,000
  4. DRs 3,60,000

Explanation

Where the grant is deducted from the asset, the depreciable amount is the reduced book value: 30,00,000 - 6,00,000 = 24,00,000. Depreciation = 24,00,000 / 10 = Rs 2,40,000. Rs 3,00,000 is wrong because it ignores the grant.

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