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

Under AS 12, Arihant Ltd. received Rs 5,00,000 from the State Government as compensation for losses already incurred due to a flood, with no future related costs. How should this grant be treated?

The grant is recognised as income in the period in which it becomes receivable, shown as an extraordinary item if appropriate. It compensates losses already incurred with no future costs, so there is nothing to defer or capitalise.

  1. ARecognised as income in the period in which it becomes receivable, as an extraordinary item if appropriateCorrect
  2. BCredited to capital reserve
  3. CDeferred and recognised over five years
  4. DDeducted from the cost of fixed assets

Explanation

AS 12 states a grant receivable as compensation for expenses or losses already incurred, or for immediate financial support with no future related costs, is recognised as income in the period it becomes receivable, with extraordinary item disclosure if appropriate. Capital reserve applies to promoters' contribution type grants, not here.

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