21 September 2010
Hi Faiz, ur question is governed by AS 12(if it is a govt. grant). Grant received for Dep fixed asset, non-dep. fixed asset and for promoters' contribution are treated as capital grants. This grant appears in the Balance Sheet. At the time of receipt, the following entry is passed: Bank A/c Dr. XX To Government Grant A/c XX In the first two cases, over the life of the asset,grant will be amortised(part transferred)to P/l A/c in the proportion in which dep. is charged. In the third case, it is transferred to capital reserve. Regards, CA Shakuntala Chhangani
21 September 2010
Thank you mam for decoding the above term. I would like to ask one thing--- In one sum of cash flow statement, this amortization of capital grant is shown by deducting from N/P before taxation and extraordinary items. Why so?
21 September 2010
Hi Faiz, if i m not wrong, u r IPCC student. since capital grants are amortised, it will be transferred to p/l a/c. But anyway, it is not an operating item n hence it, being income, is removed from cash flow from operating activities n full grant when received must have been included in cash flow from financing activities. Regards, CA Shakuntala Chhangani
21 September 2010
Yes, I am preparing for IPCC. I am clear with the treatment in cash flow.
When capital grant is getting amortized, side by side some capital asset would also come into existence. So, is it right to claim depreciation on that capital asset?? If yes, then why to amortized capital grants??
21 September 2010
Hi again,in case of capital asset,the following entry is passed at the time of receipt of grant: Bank A/c Dr. To Government Grant A/c The grant can either be deducted from cost of the asset or can be deferred. In the first case cost of asset reduces n d dep is charged on net cost. The entry for deducting grant from cost of asset is : Govt grant a/c Dr. To Asset A/c
In the second case, Grant is deferred n amortised in the same proportion in which dep is charged n the entry is : Govt Grant A/c Dr. To P/l A/c If u hv any further doubt, revert back to me Regards, CA Shakuntala Chhangani
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