Thats one viewpoint
I have 2 viewpoints .one viewpoint is, which is followed in AS-12 government grants also and I do agree with the treatment of grant and the same shall apply here but I was unable to find specific treatment
It is genrl practise to record the entry at nominal value and make entry in Fixed asset register. Lateron we can revalue the asset.
In my opinion and following AS-12
Para 7.1 Government grants may take the form of non-monetary assets, such as
land or other resources, given at concessional rates. In these circumstances,
it is usual to account for such assets at their acquisition cost. Non-monetary
assets given free of cost are recorded at a nominal value.
Further para 8.3 states 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.
Case 1 The grant is for partial amount
Asset (Total cost less incurred by way of grants)
To Bank (consideration paid)
Case 2 (grant being a dependent asset and to be capitalized in the asset)
Asset (total cost less that portion of dependent asset which was adjusted by grants)
TO bank (or other consideration)
Case 3
Asset (Full cost)
To bank (consideration paid)
TO grant
Para 8.4 Under the other method,grantsrelatedtodepreciableassetsare 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
Further
11.3 The amount refundable in respect of a government grant related to a
specific fixed asset is recorded by increasing the book value of the asset or
by reducing the capital reserve or the deferred income balance, as appropriate,
by the amount refundable. In the first alternative, i.e., where the book
value
of the asset is increased, depreciation on the revised book value is provided
(so the value which was not allowed earlier to be capitalized can now be capitalized)
Para 12(2)
the nature and extent of government grants recognised in the
financial statements, including grants of non-monetary assets given
at a concessional rate or free of cost.
I want to follow this but I need confirmation from members .
Second view point
Plus as per AS-10 ,I should be allowed to debit the non refundable taxes paid (TDS in this case)
Para 9.1 The cost of an item of fixed asset comprises its purchase price, including
import duties and other non-refundable taxes or levies and any directly
attributable cost of bringing the asset to itsworking condition for its intended
use; any trade discounts and rebates are deducted in arriving at the purchase
price. (others mentioned in later para of the AS)
So
Asset ( @ TDS amount)
TO bank
Does all of this hold good?
Viewpoint 1 and 2 does match to some extent and discpripancies are 'cause of nature of grant
I have made certain assumptions to keep it simple, which I will clear out later
CAclubindia
