08 Presentation of Grants Related to Rt Grants related to revenue are sometimes presented as a credit in the profit and loss statement, either separately or under a general heading such as 'Other Income'. Alternatively, they are deducted in reporting the related expense. Presentation of Grants of the nature of Promoters' contribution Where the government grants are of the nature of promoters' contribution, the grants are treated as capital reserve which can be neither distributed as dividend nor considered as deferred income. Refund of Government Grants Government grants sometimes become refundable because certain conditions are not fulfilled and are treated as an extraordinary item (AS 5). The amount refundable in respect of a government grant related to revenue is applied first against any unamortised deferred credit remaining in respect of the grant. To the extent that the amount refundable exceeds any such deferred credit, or where no deferred credit exists, the amount is charged immediately to profit and loss statement. The amount refundable in respect of a government grant related to a specific fixed asset is recorded by increasing the book value of the asset or by reducing the deferred income balance, as appropriate, by the amount refundable. Where a grant which is in the nature of promoters' contribution becomes refundable, in part or in full, to the government on non-fulfillment of some specified conditions, the relevant amount recoverable by the government is reduced from the capital reserve. Illustration 17 Z Ltd. purchased a fixed asset for 2 50 lakhs, which has the estimated useful life of 5 years with the salvage value of 5,00,000. On purchase of the assets goverment granted it a grant for 10 lakhs. Grant was considered as refundable in the end of 2nd year to the extent of 27,00,000. Pass the journal entry for refund of the grant as per the first method