Hello ,
A company received a capital subsidy in the current year from a nationalised bank for RS. 8 lac for the purchase of an asset.
But the company has purchased that asset for Rs.15 lac 2 years back.
Can you guide me about the accounting entries to be passed in this regard and its effect in the current year????
According to AS 12, there are two methods of accounting for Government Grants:
1) The cost of the Asset can be reduced with the help of the grant
2) Grants related to depreciable Asset can be treated as a Deferred Revenue Income and definite amount decided on a rational basis can be credited to Profit and Loss Account every year over the useful life of the Asset. The allocation is generally made on the basis of depreciation charged every year on the asset. If it relates to a non depreciable asset then the grant is credited to the Profit and Loss Account on the basis of the obligation expenses charged to Profit and Loss Account
The balance in this deferred Income is shown in the Balance Sheet under Reserves and Surplus
Here you can use the second method.
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