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

Rohit Engineering Ltd received Rs 15,00,000 from the Central Government as compensation for losses already incurred due to a natural calamity, with no future related costs. How should this grant be treated under AS 12?

The grant is recognised as income in the period in which it becomes receivable, shown as an extraordinary item if appropriate. AS 12 requires this for grants compensating losses already incurred or giving immediate support with no future related costs, so deferral is not allowed.

  1. ACredited to capital reserve
  2. BRecognised as income of the period in which it becomes receivable, as an extraordinary item if appropriateCorrect
  3. CDeducted from the cost of fixed assets
  4. DSpread over the next five years as deferred income

Explanation

AS 12 states that a grant receivable as compensation for expenses or losses already incurred, or for immediate financial support with no future related costs, is recognised as income in the period in which it becomes receivable, and shown as an extraordinary item if appropriate. Spreading it or crediting capital reserve applies to other kinds of grants.

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