You cannot treat the subsidy at the end of the 5th year.
You should reduce the the value of the fixed assets by the amount of subsidy received and claim depreciation on the so reduced amount of fixed asset as this is the only proper method of accounting.
The amount of capital subsidy should be removed from the revenue reserve and credited to the fixed asset account. This is the requirement of Accounting Standard as well Section 32 for depreciation as per Income Tax Act.
It is advised that you the following journal entry in your books of account:-
Revenue Reserve A/c------Dr. (Amt of capital subsidy)
To. Fixed Asset A/c (Amt of capital subsidy)
As for the depreciation already claimed at the higher amount you again have to pass journal entry as follows:-
Fixed Asset A/c--------------Dr. (Amt of excess Dep. charged)
To. Revenue Reserve A/c
Please contact you CA for calculation of exact amount for journal entry.
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