KS Academy Ind AS 20

Ind AS 20 – Accounting Government Grants & Government Assistance

1. B Ltd. received a grant of Rs. 60 lakhs to compensate it for costs it incurred in planting trees
over a period of five years. B Ltd. will incur such costs in this manner:

Year Costs (Rs. in lakhs)

1 2
2 4
3 6
4 8
5 10
Total costs thus incurred will aggregate to Rs. 30 lakhs, whereas the grant received is Rs. 60
lakhs. Based on the provisions of Ind AS - 20, how would B Ltd. treat the "grant" in its books?

Solution:

Applying the principle outlined in the Standard for recognition of the grant, that is,
recognizing the grant as income "over the period which matches the costs" using a "systematic
and rational basis" (in this case, sum-of-the-years' digits amortization), the total grant would
be recognized as:

Year Costs (Rs. in lakhs)

1 60 x (2/30) = 4
2 60 x (4/30) = 8
3 60 x (6/30) = 12
4 60 x (8/30) = 16
5 60 x (10/30) = 20

2. ITC Ltd. received a grant of Rs. 150 lakhs to install and run a windmill in an economically
backward area. ITC Ltd. has estimated that such a windmill would cost Rs. 250 lakhs to
construct. The secondary condition attached to the grant is that the entity should hire labour
in the local market (i.e., from the economically backward area where the windmill is located)
instead of employing workers from other parts of the country. It should maintain a ratio of
1:1 local workers to workers from outside in its labour force for the next 5 years. The windmill
is to be depreciated using the straight line method over a period of 10 years. Advise ITC Ltd.
on the treatment of this grant in accordance with Ind AS-20.

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Solution:
The grant received by ITC Ltd. will be recognized over a period of 10 years. In each of the 10
years, the grant will be recognized in proportion to the annual depreciation on the windmill.
Thus Rs. 15 lakhs will be recognized as income in each of the 10 years. With regard to the
secondary condition of maintenance of the ratio of 1:1 in the labour force, this contingency
would need to be disclosed in the footnotes to the financial statements for the next 5 years
(during which period the condition is in force), in accordance with disclosure requirements of
Ind AS-37.

3. Citimart Ltd. was granted 5,000 acres of land in a village, located near the slums outside the
city limits, by a local government authority. The condition attached to this grant was that
Citimart Ltd. should clean up this land and lay roads by employing laborers from the village
in which the land is located. The government has fixed the minimum wage payable to the
workers. The entire operation will take three years and is estimated to cost Rs. 100 lakhs. This
amount will be spent in this way: Rs.20 lakhs each in the first and second years and Rs. 60
lakhs in the third year. The fair value of this land is currently Rs. 120 lakhs. Based on the
principles laid down for accounting and recognition of grants, how should this grant is treated
in the books of Citimart Ltd.?
Solution
Citimart Ltd. would need to recognize the fair value of the grant over the period of three years
in proportion to the cost of meeting the obligation. Thus, Rs. 120 lakhs will be recognized as:

Year Grant recognized (Rs. in lakhs)

1 120 x (20/100) = 24
2 120 x (20/100)= 24
3 120 x (60/100) = 72

4. Induga Ltd. received a consolidated grant of Rs. 120 lakhs. Three-fourths of the grant is to be
utilized to purchase a college building for students from underdeveloped or developing
countries. The balance of the grant is for subsidizing the tuition costs of those students for
four years from the date of the grant. The grant would first be apportioned as:
Grant related to assets (3/4)= Rs. 90 lakhs
Grant related to income (1/4)= Rs. 30 Lakhs
Advise Induga Ltd. on the treatment of the grant in accordance with Ind AS-20.

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Solution:
The grant related to assets would be recognized in income over the useful life of the college
building, for example, 10 years, using a systematic and rational basis. Assuming the college
building is depreciated using the straight-line method, this portion of the grant (i.e., Rs. 90
lakhs) would be recognized as income over a period of 10 years at Rs. 9 lakhs per year.
The grant related to income would be recognized over a period of 4 years. Assuming that the
tuition subsidy will be offered evenly over the period of 4 years, this portion of the grant (i.e.,
Rs. 30 lakhs) would be taken to income over a period of 4 years at Rs. 7.5 lakhs per year.

5. Taj Ltd. received a grant related to a factory building that it bought in 2018. The total amount
of the grant was Rs. 9 lakhs. Taj Ltd. acquired the building from an industrialist identified by
the government. If Taj Ltd. did not purchase the factory building, which was located in the
slums of the city, it would have been repossessed by a government agency. Taj Ltd, purchased
the factory building for Rs. 27 lakhs. The useful life of the building is not considered to be
more than three years, mainly due to the fact that it was not properly maintained by the
previous owner.
Solution:
Set up the grant as deferred income.
 The grant of Rs.9 lakhs would be set up initially as deferred income in 2018.
 At the end of 2018, Rs.3 lakhs would be recognized as income, and the balance of Rs.6
lakhs would be carried forward in the balance sheet.
 At the end of 2019, Rs.3 lakhs would be taken to income, and the balance of Rs.3 lakhs
would be carried forward in the balance sheet.
 At the end of 2020, Rs.3 lakhs would be taken to income.
6. Nova Ltd. Receives Rs. 15 lakhs grant from a local municipal council to set up on a particular
area. The money is paid specifically to contribute to the Rs. 80 lakhs cost of a new factory. The
factory is to be depreciated over 40 years. Show how the items will be dealt with in the
statement of profit and loss and the balance sheet at the end of year 1.
Solution:
Statement of Profit and loss

Rs. in thousand
Depreciation of factory (assuming no estimated residual value) (200)
Government grant 37.50

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Balance Sheet

Rs. in thousand
Tangible non-current assets (Property (80-2) 7,800
Non-current liabilities:
Deferred income 1,425
Current liabilities:
Deferred income 37.50

7. N Ltd. receives Rs.100 lakhs grant to contribute to the creation of 100 jobs in the area, which
are to be maintained for 4-5 years period. The grant is meant to cover the costs of job creation
and non-productive time and then the continuing costs of employment over the 4-5 years
period. Both parties have anticipated the following cost-structure for the employment of one
new employee:

Rs. in thousand
Year 1 job creation 20
Non-productive time 12
Annual salary and related costs 30
Years 2-4 Annual salary & related costs ( 30,000 per annum) 90
152
In Year 1 the 100 employees are recruited and they work for 4 months of year 1, including all
the non-productive time. Calculate the amounts to be included in profit or loss in Year 1 to 5.
Solution:
Grant related to income
Rs. in thousand
Year 1
Costs incurred per employee in Year 1: 20
Creation 12
Non-productive time 10
Annual salary (4/12 x 30) 42
Amount credited to profit or loss
Rs. in thousand
Year 1: (42/152 x 100 lakhs) 27.60
Year 2 to 4: (30/152 x 100 lakhs) 19.70
Year 5: (8/12 X 30-20/152) 100 lakhs) 13.20

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 KS Academy Ind AS 20

8. N Ltd is provided with a grant by the Government of India to setup and maintain a
manufacturing presence in the country. The grant and related costs are as follows

Grant (Rs. in Cost ((Rs. in

Notes
thousand) thousand)
40 year life.
Factory cost 30 80 No expected residual value. Full year's
depreciation charge in Year 1
Job creation and productive time:
10 40
New jobs All incurred in Year 1

Grant (Rs. in thousand) Cost ((Rs. in thousand) Notes

To maintain a presence
12 -
for 4 years
Calculate the amount of the grant to be credited to profit or loss in Year 1 and Year 2.

Solution:

Statement of Profit
Year 1 Grant (Rs.) Proportion
and loss (Rs.)
Factory 30,000 2.50% 750
Job creation 10,000 100% 10,000
Presence 12,000 25% 3,000
13,750
Year 2
Factory 30,000 2.50% 750
Job creation 10,000 NIL -
Presence 12,000 25% 3,000
3,750

9. Induga Ltd. received a specific grant of Rs.300 lakhs for acquiring the plant of Rs.1,500 lakhs
during 2013-14 having useful life of 10 years. The grant received was credited to deferred
income in the balance sheet during 2016-17 and due to non - compliance of conditions laid
down for the grant of 300 lakhs the company had to refund the grant to the Government.

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Balance in the deferred income on that date was Rs.210 lakhs and written down value of plant
was Rs.1,050 lakhs. What should be the treatment of the refund of the grant and the effect on
cost of the fixed asset and the amount of depreciation to be charged during the year 2016-17
in the statement of profit and loss?
Solution:
As per Ind AS-20, to the extent the amount refundable exceeds any such deferred credit, the
amount should be charged to the statement of profit and loss. In this case the grant refunded
is Rs.300 lakhs and balance in deferred income is Rs. 210 lakhs, Rs.90 lakhs shall be charged
to the statement of profit and loss for the year 2016 - 17 and deferred income will be debited
by Rs.210 lakhs. There will be no effect on the cost of the fixed asset and depreciation charged
will be same as charged in earlier year.

10. NDA Ltd. has acquired a generator on 1-4-2018 for Rs.100 lakhs. On 2-4-2018, it applied to
Indian Renewal Energy Development Authority (IREDA) for a subsidy of 10% of the cost as
the generator was using solar energy. The subsidy was granted in June 2019 after the accounts
for 2018-19 were finalized. The company has not accounted for the subsidy for the year ended
31-3-2019.
Required:
a. Is this prior period item?
b. How should the subsidy be accounted in accounting year 2019-2020
c. Would your opinion differ, if the sanction letter for subsidy was received in June 2019
before the accounts for 2018-19 were approved by the Board of Directors
d. Would your opinion differ had the company made many similar applications in the past
and on all occasions, it has received the subsidy applied for?
Solution:
a. Whether a subsidy applied is to be classified as prior period item as per Ind AS-8 depends
upon 'whether the company has committed an error in 2018-19 by not recognizing the
subsidy?' The answer is Ind AS-20 permits recognition of gram only when there is
reasonable assurance that
i. the entity will comply with the conditions attached to them
ii. the subsidy will be received.

Mere making of an application does not provide the reasonable assurance that the subsidy
will be received. Letter of sanction from IREDA is required to provide this assurance.
Hence, the company was right in not recognizing the grant. Further, Ind AS-3 requires

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adjustment of events occurring after the balance sheet date only upto the date of approval
of accounts by the Board of Directors. In view of this, the company is correct in not
adjusting the same accounts for 2018-19. Hence, this is not a prior period item.

b. The subsidy should be credited to deferred income and allocated over the remaining
useful life in the proportion in which depreciation is charged in the statement profit and
loss.
c. Here in this case, the opinion given in (a) and (b) above would change Ind AS-10 requires
the value of assets and liabilities to be adjusted for events occurring after the balance sheet
date which occur upto the date of approval of accounts by the Board of Directors if they
confirm the conditions existing at the balance sheet date. Hence, in this case the accounts
ought to have been adjusted for the subsidy in 2018-19. The subsidy should be credited to
the deferred income.
d. In this case, reasonable assurance (that subsidy will be received) envisaged in Ind AS-20
is there in the form of past record. If there are no changes in the subsidy scheme and the
application is submitted in the same manner as in the past, then subsidy should have been
accounted in 2018-19 themselves.

11. SP Ltd. a listed entity has been having financial difficulties recently due to the economic
climates in its industry sector. However, its Finance Director has discovered that there are a
number of schemes by which he can obtain government financial assistance. Details of the
assistance obtained are as follows:
a. SP Ltd. has received 3 grants of Rs.10,000 each in the current year relating to ongoing
research and development projects. One grant relates to the Cuckoo project which
involves research into the effect of various chemicals on the pitch of the human voice. No
constructive conclusions have been reached yet.
The second relates to the development of a new type of the hairspray which is expected to
be extremely popular. Commercial production will commence in 2020 and large profits
are foreseen. The third relates to the purchase of high powered microscopes.
b. In 2017, SP Ltd's premises were entirely isolated from the outside world for 4 months due
to the renovation of roads by the Local Authority. All production was lost in that period.
Finance Director has been assured by the Local authority's Officers that a Rs. 25,000
compensation grant will be paid on submission of the relevant triplicate form. Finance
director had not yet filled in the form by 31st December 2018.

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KS Academy Ind AS 20

c. SP Ltd. entered into an agreement with government that, in exchange for a grant of Rs.
60,000, it will provide 'vocational experience' tours around its factory, for 12 young
criminals per month over a 5 year period starting on 1st January 2018. The grant was to be
paid on the date SP Ltd. purchased a minibus (useful life 3 years) to take the inmates to
the factory and back. The bus was bought and the grant received on 1st January 2018.
The grant becomes repayable on a pro rata basis for every monthly visit not fulfilled.
During 2018, 5 visits did not take place due to the pressure of work and this pattern is
expected to be repeated over the next 4 years.
No repayments have yet been made. Finance Director totally confused as to how to
account for these grants.
Required:
Write a memorandum to Finance Director to him how he should account for the above grants
in the account for the year ended 31st December 2018.

Solution:

Memorandum

To : Finance Director

From : ABC, Chartered Accountants

Date : 27th January 2019

Subject: Accounting for government assistance received by SP Ltd.

Ind AS-20 Accounting for Government Grants and Disclosure of Government Assistance
requires that no grant should be recognized until there is reasonable assurance that the entity
will comply with the conditions attaching to them and that the grants will actually be received.
The Standard covers forgivable loans and non-monetary grants.
a. Research and Development grants: The general principle of Ind AS-20 is that grants
should be matched in profit or loss with the expenditure to which they are intended to
contribute. They should not be credited directly to shareholders interests.
Cuckoo Project: The expenditure on the Cuckoo project is research and therefore is
written off as incurred under Ind AS-38 Intangible Assets. Accordingly the grant of
Rs.10,000 should be recognized in profit or loss in the years in which the expenditure to
which it relates is incurred.

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KS Academy Ind AS 20

Hairspray Project: The Hairspray project appears to satisfy the criteria of Ind AS-38 for
deferral of development expenditure, and thus may be carried forward as an intangible
non-current asset until commercial production commences (2020). It will then be
amortized to profit or loss over the period of successful production. Technological and
economic obsolescence create uncertainties that restrict the time period over which
development costs should be amortized. Development costs are normally therefore
amortized over a period not exceeding 5 years.
The grant of Rs.10,000 relating to it will therefore also be carried forward as deferred
income and will be released to profit or loss in line with amortization of the development
expenditure. The balance of Rs.10,000 will appear in the Balance Sheet at 31st December
2018 under current and non-current liabilities as appropriate.
Grants relating to assets should be set up as deferred income and recognized in profit or
loss over the useful life of the asset (to match the depreciation charges)

b. Compensation grant: Ind AS-20 states that grants receivable as compensation for expenses
or losses already incurred should be recognized as income when they become receivable.
They cannot be taken back to prior periods, as their receipt does not constitute correction
of an error or a change in accounting policy
However, in order to apply the prudence concept, the Standard requires grants not to be
recognized until conditions for receipt have been satisfied and receipt is reasonably
assured.
In this situation the conditions for receipts, namely filing out the triplicate form, have not
been fully satisfied and therefore the grant should not be recognized in the accounts at 31
December 2018.
c. Vocational experience' grant - General Accounting: This grant relates not to specific
expenditure but to a non-financial objective
The term of the grant suggest that it is effectively earned at a rate of Rs. 1000 per visit and
therefore it should be credited to income at that rate. In the year to 31st December 2018 the
credit will be Rs. 7,000. Amounts to be recognized in future periods will be carried forward
as deferred income.
The grant is not spread over the life of the bus as it does not specifically contribute to its
cost.
Repayments: A repayment of Rs. 5,000 is due relating to unfulfilled visits in the current
year and should be provided for. However, as this is expected to recur in each of the next

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4 years, provision also needs to be made in total for repayments relating to 20 further
visits.
A contingent liability should be disclosed relating to the potential repayment of the grant
relevant to the visits in future period which are expected to take place.

Amounts for the financial statements

Statement of Profit and loss

Rs.
Grants received (7 X 1,000) 7,000

Balance Sheet
Rs.
Current liabilities (1 X 7 X 1,000) 7,000
Non-current liabilities (3 x 7 X 1,000) 21,000
Provision for grant repayment (5 X 5 X 1,000) 25,000
Note to the financial statements - There is a contingent liability in respect of potentially
repayable government grant of Rs. 28,000.

12. MNC Ltd. has received grant in the nature of exemption of custom duty on capital goods
with certain conditions related to export of goods under Export Promotion Capital Goods
(EPCG) scheme of Government of India. Whether the same is a government grant under Ind
AS 20, Government Grants and Disclosure of Government Assistance? If yes, then whether it
is a Grant related to asset or Grant related to income and how the same is to be accounted for?

[ITFG Bulletin 11, Issue 5]

Solution:

Ind AS 20, Government Grants and Disclosure of Government Assistance, states as follows:

"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."

In accordance with the above, in the given case exemption of custom duty under EPCG
scheme is a government grant and should be accounted for as per the provisions of Ind AS 20

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KS Academy Ind AS 20

Ind AS 20 defines grant related to assets and grants related to income as follows:

"Grants related to asset 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. Grants related to income are government grants other than those related to assets.

It is pertinent to note that the classification of the grant as related to asset or income will
require exercise of judgment and careful examination of the facts, objective and conditions
attached to the scheme of the government. Care is also required to ascertain the purpose of
the grant and the costs for which the grant is intended to compensate.

Based on the evaluation of facts, if it is ascertained that the grant is an asset related grant then
the same shall be presented as per Ind AS 20 which has been stated below:

Presentation of grants related to assets

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.

The grant set up as deferred income is recognised in profit or loss on a systematic basis over the useful
life of the asset.

If it is determined that the grant is related to income then the same shall be presented as
follows:

Presentation of grants related to income

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 expense.

It may be further noted that as per Ind AS 20, government grants shall be accounted as follows:

"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".

In the given case, if based on the terms and conditions of the scheme, the grant received is to
compensate the import cost of assets subject to an export obligation as prescribed in the EPCG
Scheme; recognition of grant in the statement of profit and loss should be linked to fulfilment
of associated export obligations.

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 KS Academy Ind AS 20

However, if the grant received is to compensate the import cost of the asset and based on the
examination of the terms and conditions of the grant, if it can be reasonably concluded that
conditions relating to export of goods are subsidiary conditions, then it is appropriate to
recognise such grant in profit or loss over the life of the underlying asset.

13. ABC Co. is a government company and is a first-time adopter of Ind AS. As per the previous
GAAP, the contributions received by ABC Co. from the government (which holds 100%
shareholding in ABC Co.) which is in the nature of promoters' contribution have been
recognised in capital reserve and treated as part of shareholders' funds in accordance with the
provisions of AS 12, Accounting for Government Grants.
a. Whether the accounting treatment of the grants in the nature of promoters contribution as
per AS 12 is also permitted under Ind AS 20 Accounting for Government Grants and
Disclosure of Government Assistance. If not, then what will be the accounting treatment
of such grants recognised in capital reserve as per previous GAAP on the date of transition
to Ind AS?
b. What will be the accounting treatment of the grants in the nature of promoters
contribution which ABC Co, receives post transition to Ind AS?
[ITFG Bulletin 9, Issue 3]

Solution:

a. Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance,
inter-alia, states as follows.
"This Standard does not deal with:

Government participation in the ownership of the entity."

In accordance with the above, it may be noted that Ind AS 20 specifically scopes out the
participation by the government in the ownership of an entity.

In this fact pattern, Government has 100% shareholding in the entity. Accordingly, the entity
needs to determine whether the payment is provided as a shareholder contribution or as a
government. Equity contributions will be recorded in equity while grants will affect the
statement of profit and loss.

Where it is concluded that the contributions are in the nature of government grant, the entity
shall apply the principles of Ind AS 20 retrospectively as specified in Ind AS 101. Ind AS 20
requires all grants to be recognised as income on a systematic basis over the periods in which

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 KS Academy Ind AS 20

the entity recognises as expenses the related costs for which the grants are intended to
compensate. Unlike AS 12, Ind AS 20 requires the grant to be classified as either a capital or
an income grant and does not permit recognition of government grants in the nature of
promoter's contribution directly to shareholders' funds.

Where it is concluded that the contributions are in the nature of shareholder contributions are
recognised in capital reserve under previous GAAP, it is important to note the provisions of
Ind AS 101, which states that,

"Except as described in Ind AS 101, an entity shall, in its opening Ind AS Balance Sheet:

(a) Recognise all assets and liabilities whose recognition is required by Ind ASs;
(b) not recognise items as assets or liabilities if Ind ASs do not permit such recognition;
(c) reclassify items that it recognised in accordance with previous GAAP as one type of
asset, liability or component of equity, but are a different type of asset, liability or
component of equity in accordance with Ind ASs; and
(d) Apply Ind ASs in measuring all recognised assets and liabilities."

In the given case, contributions recognised in the Capital Reserve should be transferred to
appropriate category under 'Other Equity' at the date of transition to Ind AS.

b. The entity shall apply the same principles as mentioned above for accounting the
contributions received by the entity subsequent to the transition date.

14. AK Ltd received from the government a loan of Rs.50 lakhs @ 5% payable after 5years in a
bulleted payment. The prevailing market rate of interest is 12%. Interest is payable regularly
at the end of each year. Calculate the amount of government grant and Pass necessary journal
entry. Also examine how the Government grants to be recognised assuming:
a. the loan is an immediate relief measure to rescue AK Ltd
b. the loan is a subsidy for staff training expenses, incurred equally, for a period of 4 years
c. the loan is to finance a depreciable asset

Solution:

The fair value of the loan is calculated at Rs. 37,38,328.

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Interest paid @ 5%
Opening Interest calculated
Year on 50,00,000 + Closing Balance
Balance @ 12%
principal paid
(a) (b) (c) = (b) x 12% (d) (e) =(b) + (c) - (d)
1 37,38,328 4,48,600 2,50,000 39,36,928
2 39,36,928 4,72,431 2,50,000 41,59,359
3 41,59,359 4,99,123 2,50,000 44,08,482
4 44,08,482 5,29,018 2,50,000 46,87,500
5 46,87,500 5,62,500 52,50,000 Nil
AK Ltd will recognise Rs.12,61,672 (50,00,000 - 37,38,328) as the government grant and will
make the following entry on receipt of loan:

Bank Account Dr. 5000000

To Deferred Income 12,61,672
To Loan Account 37,38,328

Rs. 12,61,672 is to be recognised in profit or loss on a systematic basis over the periods in which
AK Ltd recognise as expenses the related costs for which the grant is intended to compensate.

Assuming (a), the loan is an immediate relief measure to rescue AK Ltd. Rs. 12,61,672 will be
recognised in profit or loss immediately.

Assuming (b), the loan is a subsidy for staff training expenses, incurred equally, for a period
of 4 years. Rs. 12,61,672 will be recognised in profit or loss over a period of 4 years.

Assuming (c), the loan is to finance a depreciable asset. Rs. 12,61,672 will be recognised in
profit or loss on the same basis as depreciation.

15. How will you recognize and present the grants received from the Government in the
following cases as per Ind AS 20?
a. A Ltd. received one acre of land to setup a plant in backward area (fair value of land Rs.12
lakhs and acquired value by Government is Rs.8 Lakhs).
b. B Ltd. received an amount of loan for setting up a plant at concessional rate of interest
from the Government.
c. D Ltd. received an amount of Rs.25 lakhs for immediate start-up of a business without any
condition.

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d. S Ltd. received Rs.10 lakh for purchase of machinery costing Rs.80 lakh. Useful life of
machinery is 10 years. Depreciation on this machinery is to be charged on straight line
basis.
e. Government gives a grant of Rs.25 lakh to U Limited for research and development of
medicine for breast cancer, even though similar medicines are available in the market but
are expensive. The company is to ensure by developing a manufacturing process over a
period of two years so that the cost comes down at least to 50%.

Solution:

a. The land and government grant should be recognized by A Ltd. at fair value of
Rs.12,00,000 and this government grant should be presented in the books as deferred
income. Alternatively, if the company is following the policy of recognizing non-monetary
grants at nominal value, the company will not recognise any government grant. Land will
be shown in the financial statements at Rs. 1.
b. As per Ind AS 20 Accounting for Government Grants and Disclosure of Government
Assistance', loan at concessional rates of interest is to be measured at fair value and
recognised as per Ind AS 109. Value of concession is the difference between the initial
carrying value of the loan determined in accordance with Ind AS 109, and the proceeds
received. The benefit is accounted for as Government grant.
c. Rs. 25 lakh has been received by D Ltd. for immediate start-up of business. Since this grant
is given to provide immediate financial support to an entity, it should be recognised in the
Statement of Profit and Loss immediately with disclosure to ensure that its effect is clearly
understood, as per Ind AS 20.
d. Rs. 10 lakh should be recognized by S Ltd. as deferred income and will be transferred to
profit and loss over the useful life of the asset. In this case, Rs.1,00,000 [10/10 years] should
be credited to profit and loss each year over period of 10 years. Alternatively, if the
company is following the policy of recognizing non-monetary grants at nominal value,
the company will not recognise any government grant. The machinery will be recognised
at Rs. 70 lakh (80-10 lakh). Reduced depreciation will be charged to the Statement of Profit
or Loss.
e. As per Ind AS 20, the entire grant of Rs. 25 lakh should be recognized immediately as
deferred income and charged to profit and loss over a period of two years based on the
related costs for which the grants are intended to compensate provided that there is
reasonable assurance that U Ltd. will comply with the conditions attached to the grant.

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