Grand in aid

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Arun Jyothy.K (Querist)
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22 July 2026 I am auditing the financial statements of Medical Services, which engages in the procurement of medicine and surgical equipment for which the company receives a grant from the government. These medicines are transferred to the respective Government hospitals. The entry was passed; however, is not in compliance with AS 12. The grant-in-aid received is designated as a revenue grant, which includes the service charges for the company; however, it is not treated as a revenue item; rather, it is shown as a liability. However, when they transfer the goods to the government, they consider it a sale. The entry passed is as follows
Grant-in-aid liability account Dr
To Grant-in-aid income
To Service charges (plus GST payable on service charges)
Upon discussion with the organisation, they stated that they have a GST registration and, therefore, once purchased, the sale entry becomes indispensable. The sale is at cost price; therefore, GST liability does not arise.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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22 July 2026 AS 12 Compliance: The grant should be recognized systematically as revenue in the statement of profit and loss to match the corresponding procurement and supply expenses, rather than remaining in a liability account.

GST Compliance: The assumption that "sale at cost price" completely eliminates GST liability needs a legal check under Section 15 of the CGST Act, keeping the contract terms and service charge component in view.

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