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AS - 12



The main Objective is how to treat and disclose government grants. Government grants are also called subsidies, Cash, Incentives, Duty drawback, etc.


It is applicable to all companies with effect from 01.04.1994.

Statement deals with accounting for government grants. Government grants.

This standard does not apply to the following:

·        Government assistance other than in the form of government grants.

·        If there is Government participation in the ownership of the enterprise then it does not apply.

  • If special problems arising in accounting for government grants in financial statements reflecting the effects of changing prices then it does not apply.



It refers to government, government agencies and similar bodies whether local, national or international.

Non-monetary Government grants:

If the government grant is in the form of non-monetary assets given at concessional rates, the asset is recorded at the acquisition cost and the assets given free of cost are recorded at a nominal value i.e. Rs. 1.

Extra ordinary Grants:

The grant is recognized in the income statement of the period in which it becomes receivable and wherever appropriate, such grants may be treated as an ‘extraordinary’ grant. The following are such circumstances:

a. Grant is awarded for the purpose of giving immediate financial support to an enterprise with no further related costs.

b. Grant is receivable by an enterprise as compensation for expenses or losses incurred in a previous accounting period.


Grants by way of Promoter’s contribution:

Grants given by way of contribution towards its total capital outlay are termed as government grants in the nature of promoters' contribution.


Government grants can be accounted either by using capital approach or by using income approach.

Capital approach: The grant is treated as part of shareholder’s funds.

Income approach: The grant is taken to income over one or more periods to match them with the related costs.

Grants by way of Promoter’s contribution:   

These grants should be treated as Capital reserve, which cannot be distributed as dividend or considered as deferred income.

Disclosure requirements:

1. The accounting policy adopted for government grants should be disclosed along with the methods of presentation in the financial statements

2. The deferred income is suitably disclosed in the balance sheet.

3. The amount refundable in respect of,

a. A grant related to revenue should be applied first against any unamortized deferred credit remaining in respect of the grant and the excess over such deferred credit balance if any, should be charged to profit and loss statement

b. A grant related to specific fixed asset should be recorded by increasing the book value of the asset or by reducing the capital reserve or the deferred income balance, as appropriate

c. A government grant in the nature of promoters' contribution should be reduced from the capital reserve.

4. Nature and extent of government grants recognized in the financial statements including grants of non monetary assets given at a concessional rate or free of cost should be disclosed.




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