CA Inter P1 · Chapter 7 · Question 1 of 8
Case: Ujjwal Solar Ltd purchased a machine for ₹50,00,000 and received a government grant of ₹10,00,000 towards it. The machine has a useful life of 8 years with nil residual value (straight-line). If the company follows the method of deducting the grant from the cost of the asset under AS 12, the annual depreciation charge is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ₹5,00,000
Explanation
Under the deduction method, the grant is deducted from the gross value of the asset: 50,00,000 - 10,00,000 = 40,00,000. Depreciation = 40,00,000 / 8 = ₹5,00,000 per year. The grant is thus recognised in profit and loss over the useful life through reduced depreciation.
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