Company Registration in Tirupur
Government grants related to fixed assets
Government grants related to specific fixed assets should be presented in the Balance-Sheet of the company by showing the grant as a deduction from the gross value of the assets concerned in arriving at their book value. Where the grant related to a specific fixed asset equals the whole, or virtually the whole, of the cost of the asset, the asset should be shown in the balance-sheet at a nominal value. Alternatively, Government grants related to depreciable fixed assets may be treated as deferred income which should be recognized in the profit and loss statement on a systematic and rational basis over the useful life of the asset, i.e., such grants should be allocated to income over the periods and in the proportions in which depreciation on those assets is charged.
Grants related to non-depreciable assets should be credited to capital reserve under this method. However, if a grant related to a non-depreciable asset requires the fulfillment of certain obligations, the grant should be credited to income over the same period over which the cost of meeting such obligations is charged to income. The deferred income balance should be separately disclosed in the financial statements. Government grants in the form of non-monetary assets, given at a concessional rate, should be accounted for on the basis of their acquisition cost. In case a non-monetary asset is given free of cost, it should be recorded at a nominal value.
Treatment of government grant received for repayment of loan
When the government has given any subsidy towards repayment of loan and interest thereon, which had been utilized for acquiring fixed assets, the subsidy amount will be treated as subsidy received to meet the capital cost of the fixed assets in the nature of government grant related to a specific fixed asset(s) of the company. Similarly, the subsidy received for payment of capitalized interest is also in the nature of a government grant related to specific fixed asset(s). Such subsidy should, therefore, be credited to deferred income or deducted from the gross book value of the asset(s) concerned; and its credit to Capital Reserve is not appropriate. Also, credit to deferred income account cannot be utilized for set-off against accumulated losses.
Gift received for purchase of capital asset
A gift received by a company for the specific purpose of acquisition of capital asset say machinery is in the nature of capital based grant. The amount of the gift may either be (i) deducted from the cost of the specific fixed assets for which the gift was made available, or (ii) kept in a special reserve and a proportionate amount transferred annually to the profit and loss account with reference to the life of the machinery.
For Company Registration in Tirupur -> Click here