ACCOUNTING FOR

GOVERNMENT
GRANTS

AS 12

AS 12 DEALS WITH
Grants

given by Government Agencies

and similar bodies in the form of
subsidies and cash incentive.
Government Agencies or Government
includes
Local,
National
and
International.

AS 12 DOES NOT DEAL

WITH
Government

Assistants provided in the

form of Tax Holiday in backward area
or Tax Exemption in notified area.
Enterprises
where
Government
participation is there.

RECOGNITION OF
GOVERNMENT GRANTS
The

Enterprise should recognize only when

there is an assurance that the Enterprise
will comply with the conditions attached to
them.
The Enterprise should also have confidence
that the Grants will be received.
The Enterprise should not be of the
impression that, they have fulfilled all the
conditions once the Grant is received.

KINDS OF GOVERNMENT
GRANTS
Non

monetary Government Grants

Grants in the form of Assets such as
Land, Plant and Machinery, etc.,
Monetary Grants
Grants related to Depreciable Fixed
Assets in the form of Money to acquire
the Fixed Assets.

ACCOUNTING TREATMENT FOR

GRANTS RECEIVED FOR
DEPRECIABLE ASSET
Method

1: Grant received will be deducted

from the Gross Value of the Assets purchased.
If the Grant received equals to the Cost of the
Asset, the Asset should be shown in the
Balance Sheet at Nominal Value and
Depreciation has to be provided on the Net
Value of the Asset.
Method 2: Grant received will be treated on
par with deferred income and each year the
amount equivalent to Depreciation will be
credited to Profit and Loss Account from this
Deferred Grant

ACCOUNTING TREATMENT FOR

GRANTS RECEIVED FOR NON
DEPRECIABLE ASSET

Method 1: Grant received will be deducted from the

Gross Value of the Assets purchased. If the Grant received
equals to the Cost of the Asset, the Asset should be shown
in the Balance Sheet at Nominal Value.
Method 2: When the Grant is received on fulfilling the
conditions laid down for receiving the Grant then, the
receipt of Grant has to be credited to Capital Reserve
Account.
Method 3: When the Grant is received before fulfilling
the conditions laid down for receiving the Grant, then the
receipt has to be credited to Deferred Government Grants
and should be shown under Liability side of the Balance
Sheet. After fulfilling the conditions or the conditions are
partly fulfilled to that extent the amount will be credited to
income proportionately.

ACCOUNTING TREATEMENT FOR

GRANTS RECEIVED RELATED TO
REVENUE IN NATURE AND
RECEIVED IN THE YEAR SPENT
The

Grant received should be credited to Profit

and Loss Account in the period in which the
related costs are debited.
The Method of
Accounting Treatment to be adopted are:
(a) The Grant can be credited as Other Income.
(b) The Amount of Grant received will be
deducted
from the expenses debited to Profit and Loss
Account.

ACCOUNTING TREATEMENT
FOR GRANTS RECEIVED
RELATED TO REVENUE IN
NATURE AND RECEIVED IN A
LATER PERIOD
The

Grant received should be credited

to Profit and Loss Account in the period
in which it is received as an
extraordinary item which is not related
to the year of receipt.

ACCOUNTING TREATEMENT
FOR GRANTS RECEIVED IN
THE NATURE OF PROMOTERS
CONTRIBUTION
The

Grant received should be credited

to Capital Reserve and it should form
part of the Share Holders Fund.

REFUND OF GOVERNMENT
GRANTS ALREADY RECEIVED
Government

Grants become refundable

because of non-fulfillment of the
conditions attached to the Grant.

TO BE ADOPTED IN CASE OF
GRANT RECEIVED RELATING
TO REVENUE REFUNDED AT A
LATER STAGE DUE TO NONFULFILLMENT OF THE
CONDITIONS
The

amount of refund to the extent

available in the unamortized Deferred
Government Grants has to be adjusted to
that account.
The remaining balance amount of refund
has to be debited to Profit & Loss Account
as extraordinary item.

ACCOUNTING TREATEMENT TO BE
ADOPTED IN CASE OF GRANT
RECEIVED RELATING TO SPECIFIC
ASSETS REFUNDED AT A LATER
STAGE DUE TO NON-FULFILLMENT
OF THE CONDITIONS

If the Asset has been shown at a value by reducing the Asset

when the Grant is received then, refund has to be debited to
the Asset Account and for the increased value the
Depreciation has to be reworked based on the remaining
useful life of the Asset.
If at the time of receiving the Grant, the Grant was credited
to Profit and Loss Account on a matching basis of
Depreciation then, the Grant refunded should be debited to
Profit & Loss Account as extraordinary item.
If at the time of receiving the Grant, the Grant is credited to
Capital Reserve Account then, at the time of refund the
Grant returned should be debited to Capital Reserve
Account.

CONTINGENCIES AND EVENTS

OCCURRED AFTER THE
BALANCE SHEET DATE
RELATED TO GOVERNMENT
GRANTS
If

after the Balance Sheet date any event has

been occurred because of which the refund
has been made after the Balance Sheet date
but, before the approval date by the
Members then, the guidelines given in the
Accounting Standard 4 has to be followed.

DISCLOSURE
The

Accounting Policy adopted for

Government
Grants
including
the
methods
of
presentation
in
the
Financial Statement has to be disclosed.
The Nature and extent of Government
Grants recognized in the Financial
Statements including Grants of nonmonetary assets given at a concessional
rate or free of cost.