As per the Provisions of Ind-AS-20, government means State government, Central government, Local Government, or an International; government (Foreign government), etc. As per the Provisions of Ind-AS-20, a grant means financial assistance that the government provides to an entity which the government provides to entities in compliance with certain conditions attached to it.
As per Ind-AS 20, government grants should be accounted for as the income approach. It can be said that grants shall be routed through Profit and loss account immediately or over some time based on the nature of grants.
Monetary Grants
Grants for Asset
Grants for Expenses
Grants for a new setup
Non-Monetary Grants
Grants for Assets
Forgivable Loans
Monetary Grants
Grants for an asset: In the case of Depreciable assets: There are two accounting methods; the first is the Asset reduction method, and the second is Amortization method. Both methods are equally prominent, and any method can be selected for accounting based on the choice of entity. In the case of Non-Depreciable assets: There are two cases, the first grant received without conditions and the second grant received with conditions. When a grant is received without conditions, it should be immediately credited to your Profit and Loss Statement. If a grant is received with the condition, it will be transferred to “Deferred Grant A/c” and amortized throughout expenditure on such non-depreciable assets.
Grants For Expenses/ Grants for Incomes: There are two cases first; If these grants are received without any conditions [i.e., No time Limit is Prescribed or any other condition of Results from expenses, etc.], then the Grant Will be credited to P&L A/c immediately and Second: If the government imposes any condition on these Grants, we should transfer them to a separate account, “Deferred Grant accounts,” and it will be amortized to Profit and loss accounts throughout expenses out of such Grant.
Grants for immediate setup of Business: If the government provides a grant. To an entity setting up a new business, such grant will be transferred to Profit and loss accounts “immediately.” The government provides these types of grants. For example, to promote industries in backward areas or promote a particular line of business. If these grants are refunded due to non-compliance with conditions, then the refund will be debited to Profit and loss accounts.
Non-Monetary Grants
Grants for Assets: If the government provides assets to the entities at concessional rates, then such grants are considered non-monetary grants because the government does not provide these grants in cash, but assets are directly provided at a reduced price. There are two methods for accounting for these grants; first Fair value method and second is Nominal Value Method.
Forgivable Loans: It may be possible that the government has provided loans to the entity at a concessional rate of interest. This means that the actual Rate of Interest will be less than the Market Rate of interest. In the given case, the government provides a grant in the form of savings in interest to the entities. The following steps should be applied for recognition and amortization.
Disclosure requirement under Ind-As 20
The entity should disclose the Accounting policy applied for Accounting of Grants.
The entity should also mention how the Grants have been presented in the Balance sheet and Profit and Loss Statement.
The nature & amount of grant which has been received during the year should also be disclosed.
Treatment of Grants in cash flow statement Monetary Grants: under the financing activities heading in the cash flow statement. (Assuming it is a source of the fund).
At Itseki Mercurius India, we assist our clients with various income tax compliances, including income tax assessments, ITR filings, tax advisory, TDS matters other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about IND AS- 20 Government Grant, kindly contact us .
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