Treatment of subsidy received for construction of cold stora

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Naveena (Querist)
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23 September 2015 Hello Experts,

we are the statutory auditors of a pvt co.,they received subsidy for construction of cold storage.

So,we have transferred the amount of grant to capital reserve.is that correct

can anyone plz help me on this

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 AS 12 : Earmarked subsidy is to be reduced from the cost of the cold storage.

https://resource.cdn.icai.org/27278asb-as-12.pdf

You may follow the link for a detailed standard.

Naveena

Naveena (Querist)
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23 September 2015 The treatment of grant to capital reserve is wrong......thats want u want to say

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 There are various SHADEs to your query.

Rightness or Wrongness is dependent on host of questions like
Is it earmarked donation/grant?
What is the year ending position?
What is completion stage of the cold storage?
When did you receive the amount?

Presuming your construction of cold storage is completed and it is ready for use.

The disclosure of the same should be

Cost of Cold Storge : XXXXXXXX
Less: Earmarked Grant : yyyyyyyy

Net to be shown in outer column.

Naveena

Naveena (Querist)
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23 September 2015 Status of cold storage : Completed in the previous year march.

Previous year we have transferred the amount of grant to deferrerd grant and charged to pandl on rational basis on the basis of depreciation..

Is this method is acceptable..

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 2014-15 : Construction completed. Fine.

You said that you transferred the amount of grant to Deferred Grant and Charged to P & L on rational basis of depreciation? In which year you did that?

2013-14 Or 2014-15?

Naveena

Naveena (Querist)
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23 September 2015 FY 2013-14,now client wants to transfer the amount of grant to capital reserve....

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 I think you better ask your client to refer "AS 12".

Since the cold storage was under construction in the year 2013-14, your action of putting it under Deferred Grant is justified. But the same is not "true and correct" in the year 2014-15. It is no more a Deferred Grant. It is also NOT a RESERVE.From the language of your query, it shows that GRANT is earmarked DONATION....earmarked for COld Storage.

Had the Grant been for the entire project as a whole, then treatment of putting it under capital reserve would have been said to be justified.

But if it is earmarked, you better try to explain your client with AS 12.

Naveena

Naveena (Querist)
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23 September 2015 the grant is for the whole project.so its better to transfer to capital reserve.

thanks a lot sir........

and more querry plzzzzzzzzzzzzz

its means we are changing the accounting treatment,that means the accounting policy,so can u pls xplain the procedure the same for changing in accounting polocy

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 If it is for Entire PROJECT, then transferring it to Capital Reserve is justified.

Within Capital Reserve you can show it as Reserve on account of Subsidy, in stead of clubbing it with other Capital Reserves.

You are NOT changing the Accounting Treatment as such. What you are doing is asking the management to transfer the Grant to its correct place. So let it come through "Notes to accounts" and let Chairman or Director disclose it in his/her report.

Why you as Statutory Auditor

Naveena

Naveena (Querist)
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23 September 2015 No its not like that....when the grant shown in the deferred grant amount,we have charged the grant amount to pandl on a rational basis of dep amount,(the extent of dep charged on cold storage is reduced fro the grat and charged to pandl) now if we want the grant amount to be shown in capital reserve the n it will effect the previous year paldl also.......

so plz suggest me what to do in this case

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 Reverse the previous years' entry. Which software you use? The ERP or TALLY-ERP?

In any case, reverse the entry on 01/04/2014.

Report the facts under CARO.. under Fixed Asset : That the treatment given to subsidy during the year 2013-14 has been changed at the conclusion of the fact that the grant is GENERAL and not EARMARKED as envisaged in AS 12.

Make a note of it in Management's responsibility Letter as well.

Naveena

Naveena (Querist)
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23 September 2015 thnk u sirrrrrrrrrrrr.....................

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 You are most welcome.
.
.

Naveena

Naveena (Querist)
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23 September 2015 if i transfered the grant amount to capital reserve,thn it will continue for years as it is..............

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 Absolutely true. It continues to be there for life time.

Message likes : 1 times

Naveena

Naveena (Querist)
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23 September 2015 ohkkkkkkkkk thnk u sir..........................

thanks a lotttt

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 you are most welcome.
.
.

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