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As-12 government grant doubt

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Sanjay Suresh

Student

104 Points Posted on 24 February 2014

I have a doubt regarding AS-12 Government Grants. The grants received by a company which is in capital nature, as i read, is received and not earned. Therefore, it doesn't have any related costs. Hence, it is not credited to profit and loss statement. My doubt is;

Grant received in revenue nature(usually credited to profit and loss statements) is also amount received by the company and not earned. So it must not have any related costs. Since there is no related costs here, is this amount(revenue nature) also not eligible to be credited to p&l???

Replies (1)

Guest

Posted on 03 March 2014

Government grants are rarely gratuitous. The enterprise earns them
through compliance with their conditions and meeting the
envisaged obligations. They should therefore be taken to income
and matched with the associated costs which the grant is intended
to compensate. It is fundamental to the ‘income approach’ that government grants be
recognised in the profit and loss statement on a systematic and rational basis
over the periods necessary to match them with the related costs. Income
recognition of government grants on a receipts basis is not in accordance
with the accrual accounting assumption