Accounting Treatement of "Capital Subsidy" from Govt.

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Rave Erd (Querist)

27 July 2010
A purchase of Machine for production as against Bank Term Loan. In the First Year, the capital subsidy received from Govt. and used for repayment of Term Loan.

what is the method of accounting of the subsidy?

srinath

srinath (Expert)

27 July 2010 there are two ways of accounting.. either credit to capital reserve or reduce the vaule of the asset

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Sunil

Sunil (Expert)

27 July 2010 Reduce the value of the asset and then calculate the depreciation. There was a time when people were taking it into capital. Assessment Officers were reducing asset value and calculating depreciation. Finally the Supreme Court had passed order that it is capital receipt and not taxable. Immediately in the next budget the FM rectified the mistake and put it as reduction in the value of asset to calculate depreciation.

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srinath

srinath (Expert)

28 July 2010 i think the question here relates to AS-12 and not as per income tax

Sunil

Sunil (Expert)

01 August 2010 Yes. Srinath is right. However, at income tax stage remember to reduce the value of asset for depreciation. That is the law.

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