Introduction: Ind AS 20 establishes principles for accounting for and disclosing government grants and other forms of government assistance. Government grants are defined as transfers of resources from the government to an entity in exchange for past or future compliance with certain conditions. This standard excludes assistance that cannot be reasonably valued and transactions indistinguishable from normal trading.
Government Assistance Definition: Government assistance is an action by the government designed to provide an economic benefit to a specific entity or entities that meet certain criteria. It excludes benefits affecting general trading conditions indirectly, such as infrastructure provision and trading constraints on competitors.
Recognition of Government Grants: Government grants, including non-monetary ones at fair value, are recognized when there is reasonable assurance that the entity will comply with conditions and will receive the grants.
Example: If a government grants funds for a research project, recognition occurs when the entity commits to fulfilling the conditions and the grant is assured.
Treatment of Non-Monetary Assets: Government grants in the form of non-monetary assets, like land, are assessed at fair value. The entity can either recognize both the grant and the asset at fair value or record them at a nominal amount.
Example: If a government grants land to build a public facility, the entity might account for both the land and grant at their fair value.
Recognition in Profit or Loss: Government grants are recognized in profit or loss on a systematic basis over the periods where related costs are incurred. Grants compensating for past expenses or providing immediate financial support are recognized in the period they become receivable.
Example: If a government provides a grant to cover research expenses already incurred, recognition happens when the grant becomes receivable.
Government Grants Related to Assets: Grants tied to asset acquisition, including non-monetary grants at fair value, can be presented in the balance sheet by setting up the grant as deferred income or deducting it from the asset’s carrying amount.
Example: A grant for purchasing machinery might be recognized as deferred income and systematically recognized in profit or loss over the machinery’s useful life.
Grants Related to Income: Government grants related to income are those not tied to assets. They are presented in profit or loss, either separately or under a general heading like ‘Other Income,’ or deducted when reporting related expenses.
Example: A research grant to cover operational expenses is recognized in profit or loss under ‘Other Income.’
Repayment of Government Grants: If a government grant becomes repayable, it’s treated as a change in accounting estimate. Repayment of a grant related to income is applied against any unamortized deferred credit first. If the repayment exceeds the deferred credit or when no deferred credit exists, it’s recognized immediately in profit or loss. Repayment of a grant related to an asset increases the asset’s carrying amount or reduces the deferred income balance. Cumulative additional depreciation, absent the grant, is recognized immediately in profit or loss.
Example: If a grant for income is repaid, the entity first checks if there’s any unamortized deferred credit. If there is, repayment is applied against it; otherwise, it’s recognized immediately in profit or loss.
Disclosure Requirements: The following must be disclosed:
- Accounting Policy: The adopted policy for government grants and the presentation methods in financial statements.
- Nature and Extent: The nature and extent of government grants in the financial statements, along with an indication of other forms of government assistance directly benefiting the entity.
- Conditions and Contingencies: Unfulfilled conditions and other contingencies attached to recognized government assistance.
Example: In the financial statements’ notes, the company outlines its policy on government grants, details the grants received, and explains any conditions or contingencies.
Appendix A – Government Assistance: The Appendix clarifies that government assistance meeting the definition of government grants under Ind AS 20 should be accounted for in accordance with the standard. Even if there are no specific conditions related to the entity’s operating activities, assistance to entities is considered government grants. Such grants should not be credited directly to shareholders’ interests.
Example: If a government provides assistance to a company operating in a specific region without specific operating conditions, it is still treated as a government grant and accounted for under Ind AS 20.
Conclusion: Ind AS 20 provides a comprehensive guideline for entities on how to account for and disclose government grants and assistance, ensuring the transparent and consistent reporting of these economic benefits. By adhering to the principles laid out in this standard, entities can accurately reflect the impact of government support on their financial position and performance. It mandates detailed disclosures that enhance the understanding of the financial statements, offering stakeholders a clear view of the extent and nature of government assistance received. Entities must meticulously apply these standards to uphold the principles of accountability and transparency in financial reporting, reinforcing trust in financial disclosures.
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