CA Inter P1 · Chapter 7 · Question 3 of 8
Case: Tarang Textiles Ltd bought equipment for ₹60,00,000 and received a grant of ₹12,00,000, which was deducted from the cost. The equipment is depreciated on straight-line basis over 6 years with nil residual value. At the end of year 2, the full grant became refundable due to non-fulfilment of conditions, and was refunded. Under AS 12, depreciation for year 3 is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ₹11,00,000
Explanation
Net cost = 60,00,000 - 12,00,000 = 48,00,000; depreciation 8,00,000 p.a.; book value after 2 years = 32,00,000. AS 12 requires the refund of a grant related to a specific asset to be recorded by increasing the book value of the asset: 32,00,000 + 12,00,000 = 44,00,000. Depreciation on the revised book value is provided prospectively over the residual life: 44,00,000 / 4 = ₹11,00,000.
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