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

Under AS 12, a State government transfers a plot of land to a manufacturing company free of cost to encourage industrial activity. How should the company record the land in its books?

The land is recorded at a nominal value, because AS 12 says non-monetary assets received from government free of cost are accounted for at a nominal value, not at fair value or the government's original cost.

  1. AAt its fair value, with an equal credit to capital reserve
  2. BAt a nominal valueCorrect
  3. CNot recorded at all until the land is sold
  4. DAt the cost the government originally paid for it, whatever that was

Explanation

AS 12 states that non-monetary assets given free of cost are recorded at a nominal value. Recording at fair value is a different treatment not stated for free-of-cost assets. Ignoring the asset altogether would also fail the disclosure requirements.

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