Skip to content

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

Sundaram Textiles Ltd received a government grant of Rs 12,00,000 towards the cost of a machine costing Rs 60,00,000, with no condition attached other than purchase of the asset. The machine has a useful life of 10 years with nil residual value and the company uses straight-line depreciation. The company follows the approach of deducting the grant from the asset's book value. What is the depreciation charge for the first full year?

The depreciation is Rs 4,80,000. When a grant related to a depreciable asset is shown as a deduction from the asset's cost, depreciation is computed on the reduced amount of Rs 48,00,000 over 10 years, not on the gross cost of Rs 60,00,000.

  1. ARs 4,80,000Correct
  2. BRs 6,00,000
  3. CRs 7,20,000
  4. DRs 4,00,000

Explanation

Under AS 12, when the grant is deducted from the asset, depreciation is charged on the reduced book value. Book value = 60,00,000 - 12,00,000 = 48,00,000. Depreciation = 48,00,000 / 10 = Rs 4,80,000. Rs 6,00,000 is wrong because it ignores the grant.

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