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Valuation of inventory when govt grant availed

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Vimal Raju

In Practice

28 Points Posted on 23 July 2015

Dear All,

One of our clients, a Pvt ltd company has received Govt grant for the purpose of manufacturing medical equipments. The company used the total grant for the purchase of components for the purpose. As per AS 12, total amount spent by the company is credited to P&L under other income. As on 31.03.2015, the company has finished one equipment and three more are in semi finished condition. None of the equipments were sold. My question is that while valuing inventory, whether we have to deduct grant from the purchase cost. Terms and conditions related to the grant are met by company.

Kindly advise.

Thanks in advance,

Vimal

Replies (1)

CA Puru Goyal

CA DISA

142 Points Posted on 07 August 2015

Dear Vimal,

By reading your points it looks like company has got and utilized grant for the sake revenue expenditure. ie they are going to sold teh equipments those are financed from Govt grant
So, by referring As-12 there are two options:-
- Charge whole grant to PL in the year of receipt because whole grant is taxable
- Reduce the cost of inventory ( it looks more appropriate in your case)