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Treatment of govt grants

23 December 2012

CAN WE PROVIDE DEPRECIATION ON DEPRECIABLE ASSETS RECIEVED FROM GOVT AS A GRANT? WHAT IS THE ACCOUNTING TREATMENT IN CASE OF SALE OF SUCH ASSETS?

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3 Replies

Sreekanth Lal B.R (CA) (85 Points)
Replied 24 December 2012

hi,

(I). Yes we can but at the time receiving a grant from govt.

1. Asset should record at its full value.

2.we have to create a reserve under reserves and surplus head to the extent of amount received.

3.At the end of each year amount equal to depreciation provided for the year should credited to p&l by transfering the amount in reserve created at the time of grant received.

(II).

1. In other case we show the asset at Net asset value i.e,after deducting the grant amount receivd from Govt.

2. In case total amount of depriciable asset received as grant the asset should show at nominal Value.

In such cases depreciation should not provide on such asset.

Accounting Treatment on sale of Such Asset :-

Genarally unless untill the Term & Conditions provided by Govt. not full filled the asset should not be sell.

Assuming Conditions are full fulled.

In First case,

Cash/bank/party A/c Dr

Reserve a/c( If incase not fully amortised) Dr

Loss on Sale of Fixed asset ( in case loss)

To Asset A/c

To Profit on sale of Asset

In Second Case

Cash/bank/party A/c Dr

Loss on Sale of Fixed asset ( in case loss)

To Asset A/c

To Profit on sale of Asset

In case Terms & conditions are not full filled then first we have to made Adjustment for refund of Govt. Grant as fallows then we have to record above entries.

The amount refundable in respect of govt. Grant Related to Sepecific fixed assets is recoded by increasing the book value of asset or by reducing the capital reserve or the differed income balance, as appropriate, by the amount refundable. in the first alternative, i.e, where the book value of asset is increased and depreciation on revised book value is provide on "prospectively".

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Bala Pullaiah B (Salaried) (179 Points)
Replied 24 December 2012

Government is giving the various grants to enterpreniers to promote the investments. If you are investing in industrially backward areas, government will give a subsidy/grant.

This grant may be depends on various terms and conditions.

Locking period
amount of investment
area of investment
nature of investment

In some of the cases government give lumsum amount to the enterprnior to invest his money in the back ward are to set up an unit.

As per AS 12:

1. Debted to P & L as reveneue and charge it to tax or

2. Reduce from the asset and charge the depreciation or

3. Debit it to Reserves & Surplus.

Out of which, which is correct only after check the grant order only can decide.

B Bala Pullaiah

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(Guest)

Originally posted by : BAIREDDY HARISH
	CAN WE PROVIDE DEPRECIATION ON DEPRECIABLE ASSETS RECIEVED FROM GOVT AS A GRANT? WHAT IS THE ACCOUNTING TREATMENT IN CASE OF SALE OF SUCH ASSETS?

Hi harish,

As per para 7.1 of AS 12 government gives grants in the form of non monetary assets like land, assets. You should account for at its acquisition cost and depreciation should be provided normally. The AS 12 is also silent about this since it is not concerned with depciation. So you should depreciate such asset as usually. When such asset is sold the treatment is normal.