International Accounting Standard - 20
AS - 04 (Contingencies and Events occurring after Balance Sheet Date)
A contingency related to a government grant, arising after the grant has been recognized should be treated in accordance with AS-4. (PARA 19)
AS - 05 (Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Policy)
Revenue Grant should be recognized and disclosed in the profit and loss statement of the period in which they are receivable, as an extraordinary item. (PARA 18) And likewise Government grant that becomes refundable. (PARA 20)
Government refers to Government, Government agencies and similar bodies whether local, national or international.
Government Grants are assistance by government in cash or kind to an enterprise for past or future compliance with certain conditions. They exclude those forms for government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the enterprise.
Government Assistance, other then government grants, i.e., Tax holidays in backward areas, Tax exemptions in notified areas.
GOVERNMENT PARTICIPATION
Grants in the nature of Promoter's Contribution should be credited to Capital Reserve which can be neither distributed as dividend nor considered as deferred income.
Grants in the nature of Promoter's Contribution should be credited to Capital Reserve which can be neither distributed as dividend nor considered as deferred income.
(PARA 16)
Where such a contribution becomes refundable, in part or in full, to the government on non fulfillment of some specific conditions, the relevant amount recoverable by the government is reduced from the Capital Reserve.
(PARA 22)
RECOGNITION OF GOVERNMENT GRANTS (PARA 13)
The Govt. Grants should be recognized when there is reasonable assurance that;
- The enterprise will comply with the conditions attached to them, and
- The grants will be received.
NOTE: Only receipt of a grant is not conclusive evidence that the conditions attached to the grant have been or will be fulfilled.
Grants in form of Land, Plant and Machinery, etc.
(1)(a) Grants are given at Concessional Rates:
Such assets are accounted for at their acquisition cost.
JOURNAL ENTRY
RECOGNITION OF GOVERNMENT GRANTS
Fixed Asset Account DR
To Bank Account
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XXX
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XXX
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DEPRECIATION
Depreciation shall be provided on the book value.
REFUND OF GOVERNMENT GRANTS
XXX
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XXX
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(1)(b) Grants are given at Free of Cost:
Such assets are recognised at their nominal value.
JOURNAL ENTRY
RECOGNITION OF GOVERNMENT GRANTS
Fixed Asset Account DR
To Profit and Loss Account
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XXX
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XXX
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REFUND OF GOVERNMENT GRANTS
Profit and Loss Account DR
To Fixed Assets Account
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XXX
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XXX
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(2)(a) Grants Related to Specific Fixed Assets (PARA 14)
(i) Depreciable Fixed Assets
METHOD - 1
Grant is shown as deduction from the gross value of the assets concerned in arriving at its book value
· Grant is less then cost of asset
JOURNAL ENTRY
RECOGNITION OF GOVERNMENT GRANTS
Fixed Asset Account DR
To Bank Account
(Total cost of fixed asset)
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XXX
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XXX
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Bank Account DR
To Fixed Asset Account
(The amount of grant received is to be reduced from the value of fixed asset)
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XXX
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XXX
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DEPRECIATION
Depreciation shall be provided on the reduced book value.
REFUND OF GOVERNMENT GRANTS
Fixed Asset Account DR
To Bank Account
(Grant refunded)
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XXX
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XXX
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DEPRECIATION
Depreciation shall be provided on the revised book value, prospectively over the residual useful life of the asset.
· Where the grant equals the whole, or virtually the whole of the cost of asset
JOURNAL ENTRY
RECOGNITION OF GOVERNMENT GRANTS
Fixed Asset Account DR
To Bank Account
(Total cost of fixed asset)
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XXX
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XXX
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Bank Account DR
To Fixed Asset Account
(The amount of grant received is to be reduced from the value of fixed asset)- (The book value will reduce to NIL)
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XXX
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XXX
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Fixed Asset Account DR
To Profit and Loss Account
(Fixed Asset should be shown in the Balance Sheet at Nominal Value)
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XXX
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XXX
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DEPRECIATION
Depreciation shall be provided on the nominal book value.
REFUND OF GOVERNMENT GRANTS
Fixed Asset Account DR
To Bank Account
(Grant refunded)
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XXX
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XXX
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DEPRECIATION
Depreciation shall be provided on the revised book value, prospectively over the residual useful life of the asset.
METHOD - 2
Grants are treated as deferred Income which is recognised in the profit and loss statement on systematic and rational basis over the useful life of the asset.
JOURNAL ENTRY
RECOGNITION OF GOVERNMENT GRANTS
Fixed Asset Account DR
To Bank Account
(Purchase of Fixed Asset)
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XXX
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XXX
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Bank Account DR
To Deferred Government Grant Account
(The amount of grant received is to be reduced from the value of fixed asset)
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XXX
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XXX
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DEPRECIATION
Depreciation Account DR
To Fixed Asset Account
(Depreciation on the book value - In this case its total cost of acquisition)
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XXX
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XXX
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Deferred Govt. Grant Account DR
To Profit and Loss Account
(The amount of grant has to be fully allocated over the life of the asset in proportion to the amount of depreciation charged)
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XXX
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XXX
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REFUND OF GOVERNMENT GRANTS
Deferred Govt. Grant Account DR
Profit and Loss Account DR
To Bank Account
(Grant refunded)
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XXX
XXX
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XXX
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DEPRECIATION
Depreciation shall be provided regularly as earlier.
(2)(a) Grants Related to Specific Fixed Assets
(ii) Non Depreciable Fixed Assets
NO OBLIGATION ATTACHED
JOURNAL ENTRY
RECOGNITION OF GOVERNMENT GRANTS
Fixed Asset Account DR
To Bank Account
(Purchase of Fixed Asset)
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XXX
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XXX
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Bank Account DR
To Fixed Asset Account/ Capital Reserve Account
(The amount of grant received is to be reduced from the value of fixed asset or credited to the Capital Reserve)
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XXX
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XXX
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REFUND OF GOVERNMENT GRANTS
Capital Reserve Account DR
To Bank Account
(Grant refunded)
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XXX
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XXX
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OBLIGATION TO FULFILL CONDITIONS ATTACHED TO THE GRANT
JOURNAL ENTRY
RECOGNITION OF GOVERNMENT GRANTS
Fixed Asset Account DR
To Bank Account
(Purchase of Fixed Asset)
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XXX
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XXX
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Bank Account DR
To Deferred Govt. Grant Account
(The amount of grant received is to be reduced from the value of fixed asset or credited to the Capital Reserve)
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XXX
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XXX
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WRITING OFF OF DEFERRED GOVERNMENT GRANT ACCOUNT
Deferred Govt. Grant Account DR
To Profit and Loss Account
(Grants are credited to income over the same period over which the cost of meeting such conditions is charged to income)
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XXX
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XXX
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REFUND OF GOVERNMENT GRANTS
Deferred Govt. Grant Account DR
Profit and Loss Account DR
To Bank Account
(Grant refunded)
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XXX
XXX
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XXX
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(2)(b) Grant related to Revenue
(i) Received as compensation for Expenses or Losses already incurred OR for the purpose of giving immediate financial support (PARA 18)
JOURNAL ENTRY
RECOGNITION OF GOVERNMENT GRANTS
Bank Account DR
To Profit and Loss Account
(Grant receivable shall be treated as Extraordinary item as per AS-5)
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XXX
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XXX
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REFUND OF GOVERNMENT GRANTS
Profit and Loss Account DR
To Bank Account
(Grant refund shall be treated as Extraordinary item as per AS-5)
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XXX
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XXX
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(ii) Government Grants relating to Revenue (PARA 15)
JOURNAL ENTRY
RECOGNITION OF GOVERNMENT GRANTS
Bank Account DR
To Profit and Loss Account
(Grant should either be shown separately under 'Other Income' or deducted in reporting the related expense)
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XXX
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XXX
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DISCLOSURE (PARA 23)
2. The nature and extent of government grants recognized in the financial statements, including grants of non-monetary assets given at a concessional rate of free of cost.
