Indian Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance
The objective of Ind AS 20 is to provide for accounting of, and the disclosures of, government grants and also the disclosure of other forms of government assistance.
Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity.
They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.
Government grants, including non-monetary grants at fair value, shall not be recognised until there is reasonable assurance that:
a) the entity will comply with the conditions attaching to them; and
b) the grants will be received.
Government grants shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate.
There are two broad approaches to the accounting for government grants:
a) the capital approach, under which a grant is recognised outside profit or loss, and
b) the income approach, under which a grant is recognised in profit or loss over one or more periods.
A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised in profit or loss of the period in which it becomes receivable.
Non-monetary government grants
A Government grant may take the form of a transfer of a non-monetary asset, such as land or other resources, for the use of the entity. In these circumstances, it is usual to assess the fair value of the non-monetary asset and to account for both grant and asset at that fair value. An alternative course that is sometimes followed is to record both asset and grant at a nominal amount.
Government grants related to assets
Grants related to assets are government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.
Government grants related to assets, including non-monetary grants at fair value, shall be presented in the balance sheet either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset.
Two methods of presentation in financial statements of grants or the appropriate portions of grants related to assets are regarded as acceptable alternatives.
a) One method recognises the grant as deferred income that is recognised in profit or loss on a systematic basis over the useful life of the asset.
b) The other method deducts the grant in calculating the carrying amount of the asset. The grant is recognised in profit or loss over the life of a depreciable asset as a reduced depreciation expense.
Government grants related to income
Grants related to income shall be presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they can be deducted in reporting the related expense.
Repayment of government grants
- A Government grant that becomes repayable shall be accounted for as a change in accounting estimate as per Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
- Repayment of a grant related to income shall be applied first against any unamortised deferred credit recognised in respect of the grant.
- To the extent that the repayment exceeds any such deferred credit, or when no deferred credit exists, the repayment shall be recognised immediately in profit or loss.
- Repayment of a grant related to an asset shall be recognised by increasing the Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance carrying amount of the asset or reducing the deferred income balance by the amount repayable.
- The cumulative additional depreciation that would have been recognised in profit or loss to date in the absence of the grant shall be recognised immediately in profit or loss.
Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. Government assistance for the purpose of this Standard does not include benefits provided only indirectly through action affecting general trading conditions, such as the provision of infrastructure in development areas or the imposition of trading constraints on competitors.
The following matters shall be disclosed:
(a) the accounting policy adopted for government grants, including the methods of presentation adopted in the financial statements;
(b) the nature and extent of government grants recognised in the financial statements and an indication of other forms of government assistance from which the entity has directly benefited; and
(c) unfulfilled conditions and other contingencies attaching to government assistance that has been recognised.
Appendix A of Ind AS 20 address the issue that whether government assistance is a government grant within the scope of Ind AS 20 and, therefore, should be accounted for in accordance within the Standard. The Appendix prescribes that government assistance to entities meets the definition of government grants in Ind AS 20, even if there are no conditions specifically relating to the operating activities of the entity other than the requirement to operate in certain regions or industry sectors. The Appendix provides that such grants shall not be credited directly to shareholders’ interests.