Deducting subsidy in machinery value?

Hi,

AS per Accounting Standard-12,You can deduct subsidy received from the govt from the original value of the machinery and provide depreciation on the balance amount of the machinery.

Dear Jothi,

Your query is realted to AS- 12-Accounting for Government Grant.

Attached file.

There are two methods in As 12

1)  Net method 

2) Gross method

in Net Method the subsidy Value will be deducted from the Purchase amount of Machinery & charge depriciation on the remaining cost to the life of the machinery

Example :- 

Machinery cost 100000 & 10 years life

Subsidy received 80000

MAcinery value in Books 100000 - 80000 i.e 20000

& charge depriciation of Rs. 2000 in P/L A/c every year

& in notes to a/c the fact that the machinery purchased on subsidy should be disclosed

In Gross method 

The purchase cost of Machinery should be recorded in books 

& depriciation will be charged on such Machinery to its life

Subsidy received will be shown under liabilities & to be amortised to the life of the asset proportionately.

Take the Same example

Depriciation in P/l will be 10000

& amortisation of  subsidy will  be credited in P/l will be 80000/10years

i.e 8000 will be credited in the name Amortisation of Subsidy

So in both method the net effect is same but the gross method is more logical than net method

Because in gross method the cost of machinery can be ascetained in future years but in net methos such thing is not possible

& also in gross method the matching principle is in compliance while in net method Matching principle has been ignored

Matching Principle means matching the revenue of the period  with its cost so the actual profit can be ascertained 

@ Shivam Super answer dude.... totally agreed