Dear members, here is my query
Actual cost of capital asset- 1.75 cr
Govt subsidy received - 25 lakhs
PLease give the treatment w.r.t AS 6,10,12
on what amount depreciation will be calculated, is it 1.75 cr or 1.5 cr (1.75cr - 25lakhs)
Also, what is the Income tax treatment of 25lakhs received from govt..
dear friend
your case belonges to AS-12 government grants
If any grant received from government in respect of depreciable assets it should be shown in the balance sheet after deduction from the gross value of asset and depreciation should be provided for on the balance after deduction of such subsidies. therefore, depreciation in the present case should be on Rs. 1.5 cr .
Alternatively, the amount of subsidy is recognise as separate line item after reserves and surplus and before secured loans as 'Deferred income' . the amount of subsidy is treated as deferred income which is recognise in the profit and loss account on a systematic and rational basis over the useful life os asset. such allocation to income is usually made over the period and in the proportion in which depreciation on related assets is charged.
For income tax the cost of asset is actual expenditure incurred by the assessee after deduction of such government subsidy. for this purpose cost on asset is Rs. 1.5 cr (1.75-.25) and depreciation is allowed on Rs.1.5 cr
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