06 August 2011
My friend has Started manufacturing unit of Flour mill for which bought major fixed assets in 2002-03. In regard of these fixed assets of rs. 100 cr. he got Subsity from government of rs.30 cr.in 2010-11.
I want to know that :-
1. subsidy will be treated as income in 2010-11. 2.it may be deducted from fixed assets. If yes, How and which name and what will the treatment of Depreciation.
06 August 2011
Dear Sir, There are two treatment in case of depreciable fixed assets Grant is shown as deduction from gross value of asset in arriving its book value. 2)grants are treated as deferred income. in ur case treatment is bank a/c dr 30/- To fixed asset book value is reduced to 70 crore and depreciation is charged every every or bank a/c dr 30/- To deferred govt grants book value is 100 crore
06 August 2011
in income approach the grant has to recognised in profit and loss account over the life of asset in proportion to depreciation.Suppose dep is 4 lakh per annum for 4 years hence grant to written off will be 2 lakh per annum for the year.it comes to 25% p.a of grant amount by slm method. deferred govt grant a/c dr 2 lakh To p&l a/c in capital approach it is in appropriate to recognize govt grant in p&l a/c since they are not earned but represent as incentive provided by govt without related cost.
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