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Accounting treatment

CA Sanjay Baheti (PROPRIETOR) (1155 Points)

15 February 2010

My client being a Partnership Firm engaged in manufacturing of disposable products.It has already commenced its business since F.Y.2008-09. Now in the current year it has applied for Power Subsidy to state level Concerned Authority. The Assesse is expecting to receive said subsidy in the year itself. in fact the subsidy is reimbursement of Power bills paid in earlier months & relief in power rate for subsequent periods in power bills.

how is to be trreated in books the same.(i.e. either as capital receipt to be apportioned among the partners in P/lL ratio or as revenue receipt or any other manner.

Regards

CA Sanjay Baheti

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2 Replies

First!!!! (student) (162 Points)
Replied 15 February 2010

According to me,

Firstly the power bills which have already been paid and the reimbursment on the same when recieved can be treated as an income because the same has already been charged as expense in the earlier period.

Secondly the future relief on power bills doesnot need any effect in the financial records as it is a revenue grant recieved and the subsidised amount on power bill will be chargable to expense in future periods

Regards,

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Vinod Kumar (Articled Assistant) (21 Points)
Replied 15 February 2010

Hi,

As per AS 12 - Accounitng for Government Grants, there are two types of grants

1. Capital Grant

2. Revenue Grant

Power Subsidy is a revenue grant.

AS 12 specifies two alternative treatment in respect of Revenue grant

1. Debit the entire amount of electricity bill to P&L account and credit the Power subsidy received to P&L account

2. Deduct the grant received from the Electricity Bill and debit the net to P&L Account.

In the given case, electricity bill paid earlier cannot be adjusted with the power subsidy to be recieved. Hence the subsidy received has to be credited to P&L account. As regards the subsequant period any of the above two methods, whichever is convinent may be followed.