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

Narmada Foods Ltd received a Rs 30,00,000 grant on 1 April 2025 for a plant costing Rs 1,20,00,000, shown as deferred income. The plant has a 10-year life, straight-line, nil residual value. Depreciation is charged on full cost. How much grant is credited to profit and loss for 2025-26, and what is the deferred income balance on 31 March 2026?

Rs 3,00,000 is credited to profit and loss, leaving deferred income of Rs 27,00,000. The grant is recognised over the asset's 10-year life in proportion to depreciation, so Rs 30,00,000 divided by 10 gives the yearly credit.

  1. ARs 3,00,000 credited; balance Rs 27,00,000Correct
  2. BRs 12,00,000 credited; balance Rs 18,00,000
  3. CRs 30,00,000 credited; balance nil
  4. DRs 2,50,000 credited; balance Rs 27,50,000

Explanation

The grant is allocated in proportion to depreciation over the useful life: 30,00,000 / 10 = Rs 3,00,000 per year. The balance is 30,00,000 - 3,00,000 = Rs 27,00,000. Crediting the whole grant ignores the matching with depreciation.

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