accounting entries-government grant

Dear all, 

 

Can you please tell me the answer of the following question as soon as possible.

 

This relates to the audit of a hospital. The hospital gets donations in the form of a machinery and equipments along with the bill / invoice for the same(thus no value problem as such). 

On the receipt of the asset the hospital passes the following accounting entry:-

                     Asset a/c Dr.

                             To Capital Reserve

 

And at the end of the year, they depreciate the asset and passes the following entry:-

 

                   Depreciation a/c Dr 

                                    To asset

 

and

 

                      Profit and loss a/c Dr.

                                  To Depreciation

 

 

Nothing is happening to the capital reserve.....

 

The capital reserve should also have been reduced.\

 

 

Can somebody tell me the correct entries..............

 

 

Pls pls pls its a little urgent.................

 

 

Thanks and regards

 

Nalini

 

                                   

 

 

 

Replies (4)

As per AS-12 Acccounting for govnt. grants if non monetary grant is received for free of cost then assets are recorded at nominal value.In this case entry should be passed as;

Asset A/s Dr.                                       Rs.100

                     To Profit & Loss A/c                   Rs.  100

there is no need to create Capital Reserve. 

 

I think you cannot account the asset for the invoice value.... only nominal value should be used for recognition..

I Agree with Afreen Khan.

As per AS-12 Accounting for grant, if it is received for free then it should be recorded with the nominal value (i.e with a small value).

Thanks all !!!

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