How to account for Government Grants under Ind AS 20

Neeraj Lohia

The objective of IND AS 20 is to lay down the accounting treatment and disclosure norms of govt. grant & govt. assistance such as subsidies, subventions, etc.

This standard shall not apply to:

i. Special problems arising in accounting for government grants in financial statements reflecting the effects of changing prices or in supplementary information of a similar nature

ii. Government assistance that is provided for an entity in the form of benefit that are determined or limited to the basis of income tax liability like income tax holidays, investment tax credit, reduced income tax rates.

iii. Government participation in the ownership of the entity.

iv. Government grants covered by Ind AS 41 Agriculture

Government Grants are:

i. Government assistance

ii. in the form of transfer of resources to an entity

iii. in return for past or future compliance with certain conditions relating to the operating activities of the entity.

Condition for Recognition of Government Grant:

i. The entity will comply with the conditions attaching to the grant and

ii. The grants will be received.

Recognition and Presentation of Government Grant:

i. Received in cash or

ii. as a reduction of a liability to the government

Special Cases:

1. Forgivable loan- These are loans which the lender undertakes to waive repayment of under certain prescribed conditions. An entity would treat a forgivable loan as a government grant when there is reasonable assurance that the entity would meet the conditions for forgiveness of the loan.

2. Government loan at a below market rate of interest- Sometimes, the government might extend a loan to an entity at a rate of interest that is lower than the market rate of interest or simply the entity does not have to pay any amount of interest. Such a benefit derived from the Government is to be treated as a Government Grant.

3. Government Assistance- sometimes, government may award grant to give financial support to an entity without any condition to undertake specific expenditure, such benefit should be recognize in profit and loss account of the period in which entity qualifies to receive it.

Repayment of Grant:

A Government grant that become repayable shall be accounted for as a change in accounting estimate.

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