CA Inter P1 · Chapter 7 · Question 2 of 8
Case: A state government gives Prayag Foods Ltd a grant of ₹40,00,000 as its contribution towards the total investment in an industrial undertaking in a backward area. No repayment is expected and the grant is not related to any specific fixed asset. Under AS 12, the grant should be:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Credited to capital reserve and treated as part of shareholders' funds
Explanation
AS 12 treats grants given with reference to the total investment in an undertaking or by way of contribution towards its total capital outlay (in the nature of promoters' contribution) as part of shareholders' funds, credited to capital reserve. They are not recognised as income because no repayment is expected and there are no conditions relating to specific costs.
More Other Accounting Standards (AS 12 and AS 14) MCQs
- Q4Which of the following is NOT a condition for an amalgamation to be classified as an 'amalgamation in the nature of merger' under AS 14?
- Q5Case: Indrayani Ltd acquires Sumitra Ltd in an amalgamation in the nature of purchase. The purchase consideration exceeds the fair value…
- Q6Case: In an amalgamation in the nature of merger accounted for under the pooling of interests method, the share capital issued by the…
- Q7Case: In an amalgamation in the nature of purchase, the transferor company had an Export Profit Reserve of ₹4,00,000 that must be…
- Q8Under AS 14, which of the following is the appropriate accounting method for an amalgamation in the nature of merger?