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Ind AS 20, or the Indian Accounting Standard 20, provides guidelines for the accounting treatment of government grants received by entities. Government grants are financial assistance or incentives given by the government or government entities to support some activities, like- research and development, infrastructure development, and environmental protection. This standard aims to ensure that government grants are recognized in a systematic and appropriate manner, reflecting their nature and conditions. In this article, we will explore the key aspects of Ind AS 20 and its implications for financial reporting.
Scope of Ind AS 20:
Ind AS 20 applies to all government grants, including non-monetary grants at fair value, received by an entity. It covers grants related to income-generating activities, also grants for the acquisition or construction of qualifying assets. However, it excludes Govt grants related to agricultural activity and government assistance that is provided in the form of benefits that are available to all entities operating in a particular industry on similar terms.
Recognition of Government Grants:
Government grants are recognized in the financial statements only when if the entity is reasonably assured that it will comply with the conditions attached to the grants and that the grants will be received. The recognition of government grants depends on whether they are of an income or capital nature.
Income Grants:
Income grants, which are intended to cover specific expenses or compensate for costs, are recognized in the statement of profit and loss over the periods necessary to match them with the related costs. They are presented as other income or deducted from the related expense. Income grants are recognized in the statement of profit and loss over the periods necessary to match them with the related costs. Capital grants are recognized as deferred income and amortized over the useful life of the related asset.
Capital Grants:
Capital grants, which are provided for the acquisition or construction of qualifying assets, are recognized as deferred income and amortized over the useful life of the related asset. The grant is typically recognized in the statement of profit and loss as a credit over the expected useful life of the asset.
Subsidized loan:
some times grants are provided in the form of low-interest rate loans, offering financial assistance to entities while promoting their self-sustainability.
When an entity receives a low-interest rate loan from the government, it should recognize the loan as a liability in its financial statements at its fair value. The fair value is determined by discounting the future cash flows of the loan at an appropriate market rate. The difference between the fair value of the loan and the amount received represents a government grant, which is recognized separately in the financial statements as deferred income.
Treatment of Repayable Grants:
If a government grant is repayable, it is recognized as a liability and measured at the amount received. The liability is reduced as the entity fulfills its obligations under the grant agreement. Any repayment or forgiveness of the grant is recognized as a reduction in liability.
Disclosure Requirements:
Ind AS 20 requires entities to disclose the nature and extent of government grants recognized in the financial statements. This includes the accounting policies adopted for government grants, any conditions attached to the grants, and the unfulfilled conditions that could result in the repayment of the grants. The disclosure ensures transparency and helps users of financial statements understand the impact of government grants on the entity’s financial performance and position.
Changes in Government Grants:
If there is a change in the conditions attached to a government grant, it may impact the accounting treatment. If the change increases the recognition of the grant, it is recognized as income over the remaining periods. Conversely, if the change reduces the recognition of the grant, it is recognized as an expense immediately or over a shorter period.
Repayment of Government Grants:
If an entity has a liability to repay a government grant, it is treated as an expense in the period when the repayment becomes due. The repayment is recognized as a separate line item in the statement of profit and loss.
Disclosure Requirements:
Ind AS 20 requires entities to disclose the nature and extent of government grants recognized in the financial statements. This includes the accounting policies adopted for government grants, any conditions attached to the grants, and the unfulfilled conditions that could result in the repayment of the grants. The disclosure provides transparency and enables users of financial statements to assess the impact of government grants on the entity’s financial position and performance.
Conclusion:
Ind AS 20 establishes principles for the accounting treatment of government grants, ensuring consistency and transparency in financial reporting. By adhering to the guidelines outlined in this standard, entities can appropriately recognize and disclose government grants, providing stakeholders with valuable information on the entity’s financial performance and the impact of government support.
FAQ:
How does Ind AS 20 define government grants?
It defines government grants as assistance in the form of transfers of resources to an entity by the government, with certain conditions attached.
What are the two types of government grants recognized under this Ind AS?
Ind AS 20 recognizes two types of government grants: revenue grants, which are recognized in profit or loss, and capital grants, which are recognized as part of equity or as deferred income.
How does Ind AS 20 handle the repayment of government grants?
It requires any repayment of government grants to be accounted for as an adjustment to the carrying amount of the asset or as a liability, depending on the circumstances.