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

Mahesh Ltd bought a machine on 1 April 2022 for ₹20,00,000, life 10 years, straight line, nil residual value, and received a grant of ₹4,00,000 which was deducted from the cost of the asset. On 1 April 2024 the grant became refundable in full because conditions were breached. Depreciation is to be charged on the revised book value prospectively over the remaining life. What is the depreciation for 2024-25?

The depreciation is ₹1,92,000 as keyed, but the working shows ₹2,10,000, so this question is flawed and should not be used.

  1. A₹2,00,000
  2. B₹1,92,000Correct
  3. C₹1,60,000
  4. D₹2,40,000

Explanation

Original book value after grant = 16,00,000; depreciation 1,60,000 a year; WDV at 1 April 2024 after two years = 16,00,000 - 3,20,000 = 12,80,000. Refund of ₹4,00,000 increases it to 16,80,000. The remaining life is 8 years so depreciation = 16,80,000 / 8 = ₹2,10,000. Check: this is not among the stated values, so re-read: AS 12 says the increase in book value is depreciated prospectively over remaining useful life, giving ₹2,10,000.

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