Accounting entries

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SUMIT R JOSHI (Querist)
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08 October 2012 If a govt. give a Grant to a company, later company purchase a Fixed Asset from that Grant, than what entries are passed by company?

CA Pooja Agarwal

CA Pooja Agarwal (Expert)
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08 October 2012 it depends on whether its a depraciable asset or a non deoreciable asset..you need to refer AS 12 for this ..Go thru the following link

http://indianaccounting.blogspot.in/2012/05/as-12-accounting-for-government-grants.html

SUMIT R JOSHI

SUMIT R JOSHI (Querist)
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08 October 2012 Dear Expert, Pooja Agrawal
Just tell me all entries in both the cases, whether depreciable asset or not?

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Asha Kanta Sharma

Asha Kanta Sharma

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14 July 2024 When a government grant is received by a company and subsequently used to purchase a fixed asset, the accounting treatment involves recognizing the grant as income and adjusting the cost of the fixed asset accordingly. Here’s how the entries would typically be passed:

### Initial Recognition of Government Grant:

1. **Receipt of Grant**:
- When the company receives the grant from the government, it recognizes it as income. Assuming the grant is for the purpose of purchasing a fixed asset, it would be recognized in the income statement.

```
Dr Bank Account (or Receivable if not received yet) XXX
Cr Government Grant Income XXX
```

- The amount credited to Government Grant Income represents the grant received.

### Purchase of Fixed Asset:

2. **Purchase of Fixed Asset**:
- The company then uses the grant to purchase the fixed asset. The cost of the fixed asset is reduced by the amount of the grant received. If any additional payment is required beyond the grant amount, it is paid separately.

```
Dr Fixed Asset Account XXX
Cr Bank Account (or Payable if paid later) XXX
```

- The fixed asset account is debited with the net amount paid for the asset after deducting the grant received.

### Example Scenario:

- Suppose a government grant of Rs. 1,00,000 is received for the purchase of a machine costing Rs. 1,50,000.
- The entries would be:
- Initial recognition of grant income:
```
Dr Bank Account 1,00,000
Cr Government Grant Income 1,00,000
```
- Purchase of fixed asset:
```
Dr Machine (Fixed Asset) 1,50,000
Cr Bank Account 1,00,000
Cr Accounts Payable (if paying remaining amount later) 50,000
```

### Subsequent Amortization:

3. **Amortization or Recognition over Time**:
- Depending on the nature of the grant (capital or revenue), it may need to be recognized as income over the useful life of the related asset. This requires careful consideration of accounting standards and regulations applicable to grants.

### Conclusion:

- Ensure proper documentation and compliance with accounting standards (like Ind AS or IFRS) while recording government grants and fixed asset purchases.
- If there are specific conditions attached to the grant (such as maintaining certain operational standards or employment levels), ensure compliance with those conditions.
- Consulting with a professional accountant or financial advisor can provide guidance tailored to your specific circumstances and ensure accurate accounting treatment of government grants and fixed asset acquisitions.