We have opened a new tea manufacturing Plant in Assam. Under CEFPPC & APC Projects, Govt will contribute grant in aid of Rs.5 Crores. We are unlisted public limited company and having turnover of Rs.600 cr.
How to account for Grant in aid. Which is conditional and refundable if terms are violated
Accounting of Fixed Assets. Capitalisation.
Can one reduce capital by grant in aid amount. I am not in favour of such Entry. Please guide. Whether AS 20,12 APPLICABLE?
Regards
Recognize the grant as a liabiity if it's conditional and refundable.
As per AS 12 (Acounting for Govt. Grants), if the grant relates to a specific fixed asset, reduce the carrying amount of the asset or treat it as deferred income.
Generally, you don't reduce capital by the grant amount. Grants are typically treated as income or deducted from the asset's cost.
AS 12 is applicable for accounting for govt. grants
Many thanks Sir.
Grant in aid seems a part of seed capital and breach of conditions will permit Central Govt to rake back grant.
Option to treat as Capital Reserve is possibly not permissible.
If we reduce from Assets, any impact on depreciation as per IT Act, tax audit? Proper reflection of asset value will be distorted
Regards,
Even if you reduce govt grant from Value of asset, there is no impact on depreciation as per income tax act. As per sec 28 of Income tax act, Grant or assistance received from central or state govt will be treated as Business income & accordingly it will be taxable. However, it will impact Profit & Loss a/c through deffered taxes. Yes you should report under clause 13 ICDS with respect to govt grant.
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