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CA NITIN GOEL AS 12 CH 10K
ACCOUNTING FOR GOVERNMENT GRANTS
MCQ’S
1. To encourage industrial promotion, IDCI offers subsidy worth ₹ 50 lakhs to all new
industries set up in the specified industrial areas. This grant is in the nature of
promoter’s contribution. How such subsidy should be accounted in the books?
a. Credit it to capital reserve
b. Credit it as ‘other income’ in the profit and loss account in the year of
commencement of commercial operations
c. Both (a) and (b) are permitted
d. Credit it to general reserve
2. Government grants that are receivable as compensation for expenses or losses

incurred in a previous accounting period or for the purpose of giving immediate
financial support to the enterprise with no further related costs, should be
a. recognised and disclosed in the Statement of Profit and Loss of the period in
which they are receivable as an ordinary item.
b. recognised and disclosed in the Statement of Profit and Loss of the period in
which the losses or expenses were incurred.
c. recognised and disclosed in the Statement of Profit and Loss of the period in
which they are receivable, as an extraordinary item if appropriate as per AS 5.
d. disclosed in the Statement of Profit and Loss of the period in which theyare
receivable, as an extraordinary item
3. Which of the following is an acceptable method of accounting presentation for a

government grant relating to an asset?
a. Credit the grant immediately to Income statement
b. Show the grant as part of Capital Reserve
c. Reduce the grant from the cost of the asset or show it separately as a deferred
income on the Liability side of the Balance Sheet.
d. Show the grant as part of general Reserve.
4. X Ltd. has received a grant of ₹ 20 crore for purchase of a qualified machine costing ₹
80 crore. X Ltd has a policy to recognise the grant as a deduction from the cost of
asset. The expected remaining useful life of machine is 10 years. Assume that there
is no salvage value & the depreciation method is straight-line. The amount of annual
depreciation to be charged as an expense in Profit and Loss Statement will be:
a. ₹ 10 crore
b. ₹ 6 crore
c. ₹ 2 crore
d. ₹ 8 crore
5. X Ltd has received a grant of ₹ 20 crore for purchase of a qualified machine costing ₹
80 crore. X Ltd. has a policy to recognise the grant as deferred income. The expected
remaining useful life of the machine is 10 years. Assume that there is no salvage
value and the depreciation method is straight-line. The amount of other income to be
to be recognised in Profit and Loss Statement will be:
Page 10K.1
a. ₹ 10 crore
b. ₹ 6 crore
c. ₹ 2 crore
d. ₹ 8 crore
6. Why can the receipt of government assistance by an entity be significant for the
preparation of the financial statements?
a. To find an appropriate method of accounting for the transfer of resources
b. To give an indication of the extent to which the entity has benefited from such
assistance
c. To identify the conditions giving rise to the period over which the grant will be
earned in order to determine costs and expenses
d. Both a & b.
7. What is the accounting treatment of government grant refundable which was in the
nature of promoters' contribution?
a. Debited to Profit & Loss Account
b. Added in the Cost of Fixed asset
c. Reduced from Deferred Government Grant Account
d. Reduced from Capital Reserve
8. A government grant that becomes refundable is treated as

a. Ordinary item
b. Prior Period Item
c. Change in Accounting Policy
d. Extra-Ordinary item
9. Entity A purchased a fixed asset of ₹ 160 Cr having useful life of 10 years. Government
provided grant of ₹ 60 Cr. After 4 years, entity had to refund the grant of ₹ 20 Cr due
to non-fulfilment of a condition. Kindly provide the amount of depreciation to be
charged in year 5. Assume - Company follows SLM method of depreciation & grant
amount is reduced from the gross block of fixed asset.
a. ₹ 16 Cr
b. ₹ 12 Cr
c. ₹ 13.33 Cr
d. ₹ 15 Cr
10. AS 12 "Accounting for Government Grants" is not applicable for following.

a. Subsidy from Government
b. Cash incentives from Government
c. Government participation in the ownership of the company
d. Duty Drawback from Government
11. Entity A received government grant of ₹ 500 Cr on 01.10.2022 for investment in capital
assets having useful life of 10 years. As on 31.03.2023, no amount could be capitalized
in the books as the assets were not ready for use. What amount should be credited to
statement of Profit & Loss out of Deferred Government Grant account in FY 2022-23.
a. ₹ 500 Cr
b. Zero
c. ₹ 50Cr
d. ₹ 25 Cr
Page 10K.2
12. Entity X purchased a fixed asset of ₹ 160 Cr having useful life of 10 years. Government
provided grant of ₹ 60 Cr. After 4 years, entity had to refund the grant of ₹ 20 Cr due
to non-fulfilment of a condition. Kindly provide the amount of depreciation to be
charged in year 5. Assume - Company follows SLM method of depreciation & grant
amount is maintained separately under Deferred Grant account.
a. ₹ 16 Cr
b. ₹ 12 Cr
c. ₹ 13.33 Cr
d. ₹ 15 Cr
13. At what value government grant is recorded in books in case a non-monetary asset is
given free of cost?
a. Fair value
b. Nominal Value
c. Concessional rate
d. Should not be recorded
Answers:
1. (a)
2. (c)
3. (c)
4. (b)
5. (c)
6. (d)
7. (d)
8. (d)
9. (c)
10. (c)
11. (b)
12. (a)
13. (b)
Page 10K.3

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CA NITIN GOEL AS 12 CH 10K

ACCOUNTING FOR GOVERNMENT GRANTS

2. Government grants that are receivable as compensation for expenses or losses

3. Which of the following is an acceptable method of accounting presentation for a

8. A government grant that becomes refundable is treated as

10. AS 12 "Accounting for Government Grants" is not applicable for following.

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