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
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.
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