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CMA Intermediate · Financial Accounting · Accounting for Government Grants (AS 12)

Sundaram Textiles Ltd receives Rs 6,00,000 from a State Government specifically to meet the cost of employee training, which is incurred evenly over 3 years. The grant is received in full on 1 April 2025. Under AS 12, how much grant income is recognised in the year ended 31 March 2026?

Rs 2,00,000 is recognised. The grant relates to specific expenses incurred evenly over three years, so it is taken to income in the same periods as those expenses on a systematic basis. Recognising it on a receipts basis would violate the accrual assumption.

  1. ARs 6,00,000, as the grant is received in that year
  2. BRs 2,00,000, matching the grant with the related expensesCorrect
  3. CRs 3,00,000, being half of the grant
  4. DNil, as the grant is recognised only at the end of year 3

Explanation

Grants in recognition of specific expenses are taken to income in the same period as the expenses. Training cost is incurred evenly over 3 years, so 6,00,000/3 = Rs 2,00,000 per year. Recognising the whole amount on receipt (option 1) is a receipts basis, which is not in accordance with accrual accounting.

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