IND AS-20 ‘Accounting for Government Grants and Disclosure of Government Assistance’ Amendment related to Non-Monetary Government Grants and its Applications

GOVERNMENT GRANTS (Ind AS 20)

Ind AS-20 Government Grants (Amendment)

The Ministry of Corporate Affairs (MCA) notified the Companies (Indian Accounting Standards) Second Amendment Rules, 2018 (the ‘Rules’) on 20 September 2018. The Rules amend Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance to allow entities the option of recording non-monetary government grants at a nominal amount and presenting government grants related to assets by deducting the grant from the carrying amount of the asset. An entity shall apply these amendments for annual periods beginning on or after 1 April 2018. The Rules also include consequential amendments to other Ind AS.

Ind AS-8 Accounting Policies, Change in Accounting Estimates and Errors

Para 14 Change in Accounting Policy

 An entity shall change an accounting policy only if the change:

(a) is required by an Ind AS; or

(b) results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.

Para 19: – Applying Changes in accounting Policies

(a) an entity shall account for a change in accounting policy resulting from the initial application of an Ind AS in accordance with the specific transitional provisions, if any, in that Ind AS; and

(b) when an entity changes an accounting policy upon initial application of an Ind AS that does not include specific transitional provisions applying to that change, or changes an accounting policy voluntarily, it shall apply the change retrospectively.

Ind AS-1 Presentation of Financial Statements

Para 40A: -An entity shall present a third balance sheet as at the beginning of the preceding period in addition to the minimum comparative financial statements if:

(a) it applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements or reclassifies items in its financial statements; and

(b) the retrospective application, retrospective restatement or the reclassification has a material effect on the information in the balance sheet at the beginning of the preceding period.

> The Ministry of Corporate Affairs (MCA) notified the Companies (Indian Accounting Standards) Second Amendment Rules, 2018 (the ‘Rules’) on 20 September 2018. The Rules amend Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance to allow entities the option of recording non-monetary government grants at a nominal amount.

> Amended Ind AS 20 does not contain any specific transitional provisions. Accordingly, changes in accounting policy (from fair value to nominal value) to be applied retrospectively as per the requirement of the Para 19(b) of the Ind AS-8 stated above.

> As per para 14 of the Ind AS-8, change in accounting policy can be made only if required by an Ind AS; or results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows. In case of recognition of grant at fair value, the entity will record the right to use and corresponding deferred revenue with the same amount in the books of accounts and further amortization expenses and Grant income in the Statement of Profit & Loss. There is no impact on the statement of Profit & Loss due to the recording of Grant at the fair value only notional income and expenses have been recorded which does not result in any impact on the Statement of Profit & Loss. Change in Accounting Policy from Fair value to Nominal value of grant results in financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows. Thus, change in accounting policy can be possible as per the requirement of Ind AS-8.

> As per Para-40A of the Ind AS-1 when an entity applies the Accounting Policy retrospectively and the retrospective application has a material effect on the information in the balance sheet at the beginning of the preceding period, an entity shall prepare the additional balance Sheet at the beginning of the preceding period.

Conclusion

Based on the guidance given above, Change in Accounting Policy of Non-Monetary Government Grant from Fair value to Nominal value can be done subject to the preparation of the third balance sheet at the beginning of the preceding period, if it results in a material effect on the balance sheet.

Compiled by CA Jyoti Aggarwal

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