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

Narmada Pharma Ltd purchased a machine on 1 April 2025 for Rs 60,00,000 with a 6-year life and nil residual value (straight-line). It received a Rs 12,00,000 government grant towards it and chose to present the grant as deferred income. What amount of grant income will be credited to profit and loss for 2025-26, and what will be the deferred income balance at 31 March 2026?

Grant income of Rs 2,00,000 is credited for the year and Rs 10,00,000 remains as deferred income. The grant is allocated in proportion to depreciation over the 6-year life, so one-sixth of Rs 12,00,000 is recognised in 2025-26.

  1. AIncome Rs 2,00,000; balance Rs 10,00,000Correct
  2. BIncome Rs 12,00,000; balance nil
  3. CIncome Rs 10,00,000; balance Rs 2,00,000
  4. DIncome Rs 2,00,000; balance Rs 12,00,000

Explanation

Under the deferred income approach the grant is recognised in profit and loss over the periods and in proportion to depreciation. Depreciation is 60,00,000/6 = Rs 10,00,000 a year, so grant income is 12,00,000/6 = Rs 2,00,000. Balance = 12,00,000 - 2,00,000 = Rs 10,00,000. Option with Rs 12,00,000 balance forgets to reduce it for the year's credit.

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