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Journal entry

Rakesh (STUDENT) (26 Points)

23 March 2021

Dear Experts,
Capital subsidy has been received by a firm. To purchase the machinery asset the firm has taken term loan from a bank. Now the bank has received the capital subsidy in saving susidry account , which the bank has not reduced the o/s term loan after the extent the capital subsidy has been received.Showing this money in a subsidiary saving account
In such a case accounting entry passed below is right?

Fixed asset A/c Dr. 700000
To Subsidy saving A/c Cr. 700000

ONE MORE-(The asset will be reduced and added to the SUBSIDRY saving account. Depreciation will be done on the remaining value, yes and no?)

Is the above entry correct?

With regards,
Rakesh

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6 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 23 March 2021

Subsidy received for asset can be deducted from the cost of assets or it can be systematically deferred in Profit and loss account as per related expenses of asset are deferred during the life of the asset

For receipt of subsidy in bank

Bank a/c Dr
to Capital Subsidy a/c

For purchase of asset

Fixed asset a/c dr
to Bank a/c

or Fixed asset a/c dr
to Subsidy a/c

If subsidy is deferred in profit and loss (every year for life of asset)

Depreciation a/c dr
To fixed assets a/c

P/L a/c dr
to Depreciation a/c

Subsidy a/c dr
to P/L a/c

Depreciation should be deducted from cost of asset and then subsidy should be deducted from carrying amount of asset

Rakesh (STUDENT) (26 Points)
Replied 23 March 2021

Right now I have to pass the entry of capital subsidy receipts, you want to say that you have to reduce the value of the asset and credit it to the subsidy account.

Bank a/c Dr

to Capital Subsidy a/c Cr.

Fixed asset a/c dr

to Subsidy a/c Cr.

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 23 March 2021

Entry for subsidy received in bank

Bank a/c dr
to Subsidy a/c

For purchase of fixed assets

Fixed assets a/c dr
to Bank a/c

And for deduction of subsidy from fixed assets

Subsidy a/c dr
to fixed assets a/c

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 23 March 2021

Either

Bank a/c dr

To Subsidy Cr. - income head

Subsidy a/c

To Fixed assets a/c

will work as per the new Amendment Made by the Finance Act, 2015. It isn’t using method of accounting for grants of assets rather than deferring.

https://kb.icai.org/pdfs +

Rakesh (STUDENT) (26 Points)
Replied 23 March 2021

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 23 March 2021

Depreciation and method to reduce the asset value= (cost of machine - grant amount / machinery useful life)
In the balance sheet:
Asset machinery (cost of asset- grant amount)
Less: Accumulated depreciation= use above formula.

this gives the NBV, reduced cost of machinery