Skip to content

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

Sundaram Textiles Ltd. received a government grant of ₹6,00,000 towards the cost of a machine costing ₹30,00,000 (grant relates to a depreciable asset, but no specific condition of useful life is attached). The company decides to show the grant as a deduction from the gross value of the asset. The machine has a useful life of 10 years, straight-line, nil residual value. What is the depreciation for the first full year?

Depreciation is ₹2,40,000. When a grant is deducted from the asset's gross value, the reduced amount of ₹24,00,000 (30,00,000 less 6,00,000) is depreciated over 10 years on straight-line basis, giving ₹2,40,000 per year.

  1. A₹3,00,000
  2. B₹2,40,000Correct
  3. C₹2,70,000
  4. D₹3,60,000

Explanation

Under AS 12, when the grant is deducted from the asset, the book value becomes 30,00,000 - 6,00,000 = 24,00,000. Depreciation = 24,00,000 / 10 = ₹2,40,000. Option ₹3,00,000 ignores the grant; ₹2,70,000 wrongly treats the grant as 10% of cost less.

Did you get it right without looking?

One question tells you little. A timed set on AS 12 Accounting for Government Grants shows your real accuracy, how long you take and where you lose marks.

Practise AS 12 Accounting for Government GrantsFree diagnostic mock

More AS 12 Accounting for Government Grants questions