Ind AS 20, Accounting for Government Grants, IndAS 20 Vs AS 12

Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance: This Standard shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assistance.

Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of 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 entity.

Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. Government assistance for the purpose of this Standard does not include benefits provided only indirectly through action affecting general trading conditions, such as the provision of infrastructure in  development areas or the imposition of trading constraints on competitors.

In this Standard, government assistance does not include the provision o f infrastructure by improvement to the general transport and communication network and the supply of improved facilities such as irrigation or water reticulation which is available on an ongoing indeterminate basis for  the  benefit of an entire local community.

Government grants, including non-monetary grants at fair value, shall not be recognised until there is reasonable assurance that:

• the entity will comply with the conditions attaching to them; and
• the grants will be

A government grant may take the form of a transfer of a non-monetary asset, such as land or other resources, for the use of the entity. In these circumstances, the fair value of the non-monetary  asset  is  assessed  and both grant and asset are accounted for at that fair value.

Government grants shall be recognised in profit or loss on a systematic basis

over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate.

A government grant that becomes receivable as compensatio n for expenses  or losses already incurred or for the purpose of giving immediate financial support to the entity  with no future related costs shall  be recognised in profit  or loss of the period in which it becomes receivable.

Grants related to assets are government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they  are to be acquired or held.

Government grants related to assets, including non-monetary grants at fair value, shall be presented in the balance sheet by setting up the grant as deferred income.

Grants related to income are government grants other than those related to assets. Grants related to income are presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expenses.

A government grant that becomes repayable shall be accounted for as a change in accounting estimate (Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors). Repayment of a grant related to income shall be applied first against any unamortised deferred credi t recognised in respect of the grant. To the extent that the repayment exceeds any such deferred credit, or when no deferred credit exists, the repayment shall be recognised immediately in profit or loss. Repayment of a grant related to an asset shall be recognised by reducing the deferred income balance by the amount repayable.

The following matters shall be disclosed:

• the accounting policy adopted for government grants, including the methods of presentation adopted in the financial statements;
• the nature and extent of government grants recognised in the financial statements and an indication of other forms of government assistance from which the entity has directly benefited; and
• unfulfilled conditions and other contingencies attaching to government assistance that has been

Appendix A of Ind AS 20 address the issue that whether government assistance is a government grant within the scope of Ind  AS  20  and, therefore, should be accounted for in accordance within the Standard. The Appendix prescribes that government assistance to entities meets the definition of government grants in Ind AS 20, even if there are no conditions specifically relating to the operating activities of the entity other than the requirement to operate in certain regions or industry sectors. The Appendix provides that such grants shall not be credited directly to shareholders’ interests.

Difference Between AS 12 and Ind AS 20

AS 12	Ind AS 20
AS 12 requires that if the asset is given by the government at a discounted price, then the asset and the grant shall be accounted at such discounted purchase price. Further, assets given free of cost are to be accounted at nominal values.	Ind AS 20 states that in case the asset is acquired at nominal or concessional rate, then the asset and the grant shall be accounted at fair value, as such a treatment will be conceptually superior, as compared to  valuation at discounted purchase price and will also result into presentation of information in more relevant manner.
Under AS 12, grants related to assets can either be: Credited to Capital Reserve or be treated as deferred income or Deducted from the cost of the asset to arrive at its carrying value.	Ind AS 20 permits only the deferred income approach. Hence, the option of deducting the grant from the gross value of asset, to arrive at its carrying value is not available in Ind AS 20.
AS 12 deals only with Government Grants.	Ind AS 20 also deals with certain other forms of government assistance. It states that such other forms of government assistance, from which the entity is directly benefited, be disclosed in the Financial Statements.
AS 12 states that the government grants, in the nature of promoter’s contribution should be credited directly to Capital Reserve (Part of shareholder’s funds)	Ind AS 20 is based on the principle that all government grants would normally have certain obligations attached to them. So, it states that all the grants should be recognised as income over the periods, which bear the cost of meeting the obligation. (i.e. treated as deferred income)
AS 12 permits the following alternative treatments for grants in respect of non-depreciable assets: Deduct from the cost of the asset or Credit to Capital Reserve (part of Shareholder’s Funds). However, if the procurement of grant have certain future obligations to be fulfilled, then such grant shall be treated as deferred income and credited to P&L Account, over the periods, which bear the cost of meeting obligation.	Ind AS 20 is based on the principle that all government grants would normally have certain obligations attached to them. So, it states that all the grants should be recognised as income over the periods, which bear the cost of meeting the obligation. (i.e. treated as deferred income)
AS 12 does not require such accounting treatment.	Ind AS 20 requires that the loans received from a government at less than market rate of interest (i.e. at concessional rate of interest)  should be recognised and measured in accordance with Ind AS 109. As per Ind AS 109, all the loans have  to be recognised at fair values. Therefore, the value of concession, i.e. the difference between the proceeds received and the value as per Ind AS 109 shall be treated as Government Grant, to be accounted for, as per Ind AS 20.

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