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

Under AS 12, which of the following is outside the meaning of 'government grants'?

A government payment for goods supplied at normal prices is not a grant. AS 12 excludes transactions with government that cannot be distinguished from the enterprise's normal trading transactions, so such receipts are ordinary revenue, while conditional assistance in cash or kind is a grant.

  1. AA cash subsidy from a State Government given on condition that a firm sets up a unit in a backward area
  2. BTransfer of land by a local authority to a firm at a concessional price, subject to conditions
  3. CAssistance from an international agency, treated as government, in cash to meet compliance conditions
  4. DA payment by a government department for goods supplied at normal prices, indistinguishable from ordinary tradingCorrect

Explanation

AS 12 defines grants as assistance in cash or kind for past or future compliance with conditions. It excludes transactions with government that cannot be distinguished from the normal trading transactions of the enterprise. The payment for goods at normal prices is ordinary sales revenue, not a grant. The other options are conditional assistance in cash or kind.

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