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Relating to capital investment subsidy AS 12

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Querist : Anonymous

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Querist : Anonymous (Querist)
04 June 2011 10% Capital Investment Subsidy received from Central Government on september,2011 aganist the investment made on plant & Machinery during the financial year 2004-05, but for the same no accounting has been provided in the books. kindly suggest the Accounting Treatment for the F.Y 2010-11.

05 June 2011 1st check on which date a reasonable certainty of getting subsidy is finalized. This date will be relevant date to book this as a subsidy, however AS 9 talks about reasonable certainty and not AS 10 so this may be debatable. However one base can be taken a reasonable certainty or receipt will be final date as per debates and from onwards depreciation to be recalculated and prior period effect entry to be passed.

10 October 2011 hey the above expert reply is not appropriate in the case

AS per AS-12"GOVERNMENT GRANTS"

The above capital subsidy should be reduced from the WDV of the asset

And from the balance WDV the depreciation to be charged prospectively

10 October 2011 As per other method, the amount of subsidy can be transferred to Deferred Income A/c and proportionately transferred to P/L A/c in the proportion of depreciation charged on the asset

For details look text of AS-12 given below

10 October 2011 AS per text of AS -12

"Two methods of presentation in financial statements of grants (or the appropriate portions of grants) related to specific fixed assets are regarded as acceptable alternatives.

8.3 Under one method, the grant is shown as a deduction from the gross value of the asset concerned in arriving at its book value. The grant is thus recognised in the profit and loss statement over the useful life of a
depreciable asset by way of a reduced depreciation charge. Where the grant equals the whole, or virtually the whole, of the cost of the asset, the asset is shown in the balance sheet at a nominal value.

8.4 Under the other method, grants related to depreciable assets are treated as deferred income which is recognised in the profit and loss statement on a systematic and rational basis over the useful life of the asset. Such allocation to income is usually made over the periods and in the proportions in which depreciation on related assets is charged. Grants related to non-depreciable assets are credited to capital reserve under this method, as there is usually no charge to income in respect of such assets. However, if a grant related to a non-depreciable asset requires the fulfillment of certain obligations, the grant is credited to income over the same period over which the cost of meeting such obligations is charged to income.The deferred income is suitably disclosed in the balance sheet pending its apportionment to profit and loss account. For example, in the case of a company, it is shown after ‘Reserves and Surplus’ but before ‘Secured Loans’ with a suitable description, e.g., ‘Deferred government grants’.
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