Ind AS 20: Indian Accounting Standard for government grants disclosure

While preparing their financial statements, companies that enjoy the benefits of government grants, have to disclose such grants and subsidies. Accounting rules to deal with this subject are provided under the Indian accounting standard 20 (Ind AS 20).

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See also: All about Indian accounting standards (Ind AS)

Scope of Ind AS 20

The rules of this standard, however, do not cover:

Special problems that arise in the accounting of government grants, in financial statements that reflect the impact of changing prices or in supplementary information of a similar nature.
Government assistance to an entity that is provided in the form of benefits that are available in determining taxable profit or loss, or determined / limited on the basis of IT liability. These include IT holidays, investment tax credits (ITC) and accelerated depreciation.
Government participation in the ownership of companies.
Government grants covered by Ind AS Agriculture.

What are government grants under Ind AS 20?

Government grants include assistance, in the form of transfer of resources to companies, in return for compliance with certain conditions in the past or future.

Grants related to assets: These are government grants where the primary condition is that the entity qualifying for the same, should purchase, construct or otherwise acquire long-term assets. Other conditions may also be included, restricting the type or location of the assets or the period for which it has to be acquired or held.

See also: What is Long Term Capital Gain?

Grants related to income: Such grants are related to assets. Forgivable loans refer to loans that the lender undertakes, to waive repayment under certain prescribed conditions.

What is excluded from government grants?

Government assistance of certain forms that cannot reasonably have a value ascribed to them, as well as transactions that cannot be distinguished from the normal trading transactions of the company, are excluded from the purview of government grants. These include free technical or marketing advice, provision of guarantees, procurement policy, etc.

Recognition of government grants under Ind AS 20

Government grants, including non-monetary grants at fair value must be recognised until there is reasonable assurance that the company will comply with the conditions attached to them, while enjoying the grants. Also, the manner in which a grant is received, does not affect the accounting method to be adopted with respect to the grant. Such grants should be recognised on a systematic basis in profit or loss, over the period for which the company recognises as expenses, the related costs for which the grants are intended to compensate.

See also: All about Ind-AS 7 and statement of cash flows

A government grant can also be in the form of transfer of non-monetary assets, such as land or other resources. In such cases, the fair value of the asset is assessed and both, the grant and asset, are accounted for at that fair value.

Disclosure under Ind AS 20

Companies have to disclose the following matters in their financial statements:

The accounting policy adopted, vis-à-vis the government grants, including the presentation method adopted in the financial statements.
The nature and extent of the recognised government grants in the financial statements and an indication of other forms of government assistance that have directly benefited the entity.
Unfulfilled conditions and other contingencies attached to the government assistance that has been recognised.

Check out: Know about BOI IFSC code

FAQ

What does Accounting Standard 20 stands for?

Indian accounting standard Ind AS 20 defines disclosures for government grants received by entities.

How do you record government grants in accounting?

Government grants pertaining to assets should be presented in the balance sheet of the entity.

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Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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