CA Professional & Student- PLI Accounting

1. Government of Wadanda has rolled out following Production linked incentive scheme in its country to promote production and faster adoption of electric vehicle and selected few major players in the domestic market who will be eligible for the scheme.

The summary of the scheme is as under:

1. The company is Invests cumulative of below mentioned amount on year-on-year basis in India.

2. Front loading of investment is encouraged by the government. Any front loading of investment will be discounted by below mentioned rate to evaluate the investment criteria requirement

3. The company is able to generate incremental sales of 10% on year-on-year basis over an above the sales of the previous year.
4. In case any company is not able to meet the investment criteria in any year, the company will not be eligible for the any incentives in that particular year. However of the company meets the investment criteria on a cumulative basis, the company will be eligible for incentive in that year and not for the previous year.
5. The base year for the sales growth should be sales of the company reported in the financial year 2021-22 or 1200 crores which ever is higher. Incase the company is not able to meet growth criteria in any year the company will not be eligible for incentive for that year. In the following year the company has to achieve cumulative sales growth of 10% for each year over the base or 10% of the sales of the preceding financial year which ever is higher to be eligible for the incentive.
6. The incentive will be paid out on @ 12% of the incremental sales growth the company has achieved.

A Limited has been selected as one of champion under the Auto Sector PLI Scheme and eligible to apply for government incentives during the period FY 2022-23 to FY 20226-27. Sales and investment of the Company are as under:

You are Finance controller of the company and required to do the accounting of the incentive receivable from the government on year on year basis. Please complete the accounting of the PLI scheme with appropriate provision of the Indian accounting standard.

1. Please explain the requirement of accounting standards
2. Please pass journal entries
3. Please provide detailed workings for answer.