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

Sundaram Engineering Ltd. received Rs 12,00,000 as a government grant for a plant costing Rs 48,00,000, with a useful life of 8 years, straight-line depreciation, nil residual value. The company shows the grant as deferred income. What is the net amount charged to profit and loss for the year relating to the plant and the grant (depreciation less grant income)?

The net charge is Rs 4,50,000. Depreciation on the full cost is Rs 6,00,000, while the deferred grant of Rs 12,00,000 is credited to profit and loss over the same 8 years at Rs 1,50,000 a year, leaving a net Rs 4,50,000.

  1. ARs 4,50,000Correct
  2. BRs 6,00,000
  3. CRs 7,50,000
  4. DRs 1,50,000

Explanation

Depreciation = 48,00,000/8 = 6,00,000. Grant income recognised in proportion to depreciation = 12,00,000/8 = 1,50,000. Net charge = 6,00,000 - 1,50,000 = Rs 4,50,000. Rs 6,00,000 ignores the grant credit.

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