I am auditing a company. My company has received subsidy of Rs. 4 crore for an asset of Rs. 10 crore. Useful life -5 years and WDV rate- 45.07%
Para 8.4 of AS 12 is followed , that is, recognition of defered income.
One stand is that the accounting should be in same proportion so in first year depreciation is Rs. 4.51 crore and defered income is rs 1.90 crore (4 crore X total depreciation of 4.51 crore / cost of asset after deducting scrap value Rs. 9.50 crore). There will be residual value of assets and also unadjusted subsidy amount at rate of 5% (scrap value) at the end of useful lives.
Company stand is that it was to keep scrap value for asset but write off entire amount of subsidy. So depreciation is rs 4.51 crore but defered income is rs 1.80 crore (4 crore X total depreciation of 4.51 crore / cost of asset without deducting scrap value Rs. 10 crore). There reasoning is that if Para 8.3 was followed, subsidy would have been nil and depreciation would have been reduced. here more income is recognized , so utlimate impact on retained earning would be same whether para 8.4 or para 8.3 is followed.
Please guide on which stand is right based on AS
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