Capital Subsidy Accounting!!!
This query is : Resolved
25 September 2010
Dear Experts,
Capital subsidy has been received by a firm. To purchase the asset the firm has taken term loan from a bank. Now the bank has received the capital subsidy, for which the bank has reduced the o/s term loan to the extent the capital subsidy has been received.
In such a case accounting entry passed below is right?
Term Loan A/c Dr. 500000
To Fixed Assets A/c 500000
(being the capital subsidy received by the bank)
Is the above entry correct?
With regards,
Rajesh.
Capital subsidy has been received by a firm. To purchase the asset the firm has taken term loan from a bank. Now the bank has received the capital subsidy, for which the bank has reduced the o/s term loan to the extent the capital subsidy has been received.
In such a case accounting entry passed below is right?
Term Loan A/c Dr. 500000
To Fixed Assets A/c 500000
(being the capital subsidy received by the bank)
Is the above entry correct?
With regards,
Rajesh.
25 September 2010
Fixed assets should be carried in books as per WDV value. However subsidy should be shown seperately in books ,
Term loan A/c Dr.
To Subsuidy A/c.
The subsidy should be charge off to P/L a/c as per life of assets.
Term loan A/c Dr.
To Subsuidy A/c.
The subsidy should be charge off to P/L a/c as per life of assets.
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25 September 2010
But explanation 10 to section 43(1) says subsidy should be reduced from the cost of the asset.
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shakuntala chhangani
(Expert)
28 September 2010
Dear Friends, Accounting is different from tax laws. Grant is covered under AS 12.
The grant is related to fixed asset has two alternative treatments. First it should be presented in the balance sheet by showing grant as a deduction from the gross value of the asset.Second alternative is :
(a) Grant related to depreciable fixed asset can be treated as deferred income. If treated so, deferred income should be recognised in P/L A/c on a systematic and rational basisover the useful life of the asset in the proportion in which dep is charged.
(b) If grant relates to non-depreciable asset ;ike land, the amount should be credited to capital reserve. However, if a grant related to a non-dep. asset requires the fulfillment of certain conditions, the grant should be deferred and credited to incomeover the period over which cost of meeting such obligation is charged to income.
In view of these provisions, pass the following two entries :
Bank loan A/c Dr. 5,00,000
To Govt. Grant A/c 5,00,000
Govt. Grant A/c Dr. 5,00,000
To Fixed Asset A/c 5,00,000
Regards, CA Shakuntala Chhangani
The grant is related to fixed asset has two alternative treatments. First it should be presented in the balance sheet by showing grant as a deduction from the gross value of the asset.Second alternative is :
(a) Grant related to depreciable fixed asset can be treated as deferred income. If treated so, deferred income should be recognised in P/L A/c on a systematic and rational basisover the useful life of the asset in the proportion in which dep is charged.
(b) If grant relates to non-depreciable asset ;ike land, the amount should be credited to capital reserve. However, if a grant related to a non-dep. asset requires the fulfillment of certain conditions, the grant should be deferred and credited to incomeover the period over which cost of meeting such obligation is charged to income.
In view of these provisions, pass the following two entries :
Bank loan A/c Dr. 5,00,000
To Govt. Grant A/c 5,00,000
Govt. Grant A/c Dr. 5,00,000
To Fixed Asset A/c 5,00,000
Regards, CA Shakuntala Chhangani
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