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Accounting for Government Grants and Disclosure of Government Assistance

Ind AS - 020 - Rules - B. Indian Accounting Standards (Ind AS) - Companies (Indian Accounting Standards) Rules, 2015 - Ind AS - 020 - Indian Accounting Standard (Ind AS) 20 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Scope 1 This Standard shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assis .....

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nt tax credits, accelerated depreciation. (c) government participation in the ownership of the entity. (d) government grants covered by Ind AS 41, Agriculture. Definitions 3 The following terms are used in this Standard with the meanings specified: Government refers to government, government agencies and similar bodies whether local, national or international. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifyi .....

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es 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 entity1. 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 asse .....

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takes many forms varying both in the nature of the assistance given and in the conditions which are usually attached to it. The purpose of the assistance may be to encourage an entity to embark on a course of action which it would not normally have taken if the assistance was not provided. 5 The receipt of government assistance by an entity may be significant for the preparation of the financial statements for two reasons. Firstly, if resources have been transferred, an appropriate method of ac .....

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all not be recognised until there is reasonable assurance that: (a) the entity will comply with the conditions attaching to them; and (b) the grants will be received. 8 A government grant is not recognised until there is reasonable assurance that the entity will comply with the conditions attaching to it, and that the grant will be received. Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to the grant have been or will be fulfilled. 9 The manner in .....

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ent grant. The loan shall be recognised and measured in accordance with Ind AS 109, Financial Instruments. The benefit of the belowmarket rate of interest shall be measured as 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 in accordance with this Standard. The entity shall consider the conditions and obligations that have been, or must be, met when identifying the costs for which the .....

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for government grants: the capital approach, under which a grant is recognised outside profit or loss, and the income approach, under which a grant is recognised in profit or loss over one or more periods. 14 Those in support of the capital approach argue as follows: (a) government grants are a financing device and should be dealt with as such in the balance sheet rather than be recognised in profit or loss to offset the items of expense that they finance. Because no repayment is expected, such .....

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ent grants are rarely gratuitous. The entity earns them through compliance with their conditions and meeting the envisaged obligations. They should therefore be recognised in profit or loss over the periods in which the entity recognises as expenses the related costs for which the grant is intended to compensate. (c) because income and other taxes are expenses, it is logical to deal also with government grants, which are an extension of fiscal policies, in profit or loss. 16 It is fundamental to .....

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er than the one in which it was received. 17 In most cases the periods over which an entity recognises the costs or expenses related to a government grant are readily ascertainable. Thus grants in recognition of specific expenses are recognised in profit or loss in the same period as the relevant expenses. Similarly, grants related to depreciable assets are usually recognised in profit or loss over the periods and in the proportions in which depreciation expense on those assets is recognised. 18 .....

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of conditions are attached. In such cases, care is needed in identifying the conditions giving rise to costs and expenses which determine the periods over which the grant will be earned. It may be appropriate to allocate part of a grant on one basis and part on another. 20 A government grant that becomes receivable as compensation 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 prof .....

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ure to ensure that its effect is clearly understood. 22 A government grant may become receivable by an entity as compensation for expenses or losses incurred in a previous period. Such a grant is recognised in profit or loss of the period in which it becomes receivable, with disclosure to ensure that its effect is clearly understood. Non-monetary government grants 23 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 en .....

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asset. 27 [Refer Appendix 1] 28 The purchase of assets and the receipt of related grants can cause major movements in the cash flow of an entity. For this reason and in order to show the gross investment in assets, such movements are disclosed as separate items in the statement of cash flows. Presentation of grants related to income 29 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 dedu .....

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ng. 31 Both methods are regarded as acceptable for the presentation of grants related to income. Disclosure of the grant may be necessary for a proper understanding of the financial statements. Disclosure of the effect of the grants on any item of income or expense which is required to be separately disclosed is usually appropriate. Repayment of government grants 32 A government grant that becomes repayable shall be accounted for as a change in accounting estimate (see Ind AS 8 Accounting Polici .....

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] Government assistance 34 Excluded from the definition of government grants in paragraph 3 are certain 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. 35 Examples of assistance that cannot reasonably have a value placed upon them are free technical or marketing advice and the provision of guarantees. An example of assistance that cannot be disti .....

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not be misleading. 37 [Refer Appendix 1] 38 In this Standard, government assistance does not include the provision of 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. Disclosure 39 The following matters shall be disclosed: (a) the accounting policy adopted for government grants, including .....

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Relation to Operating Activities This appendix is an integral part of the Ind AS. Issue 1 In some countries government assistance to entities may be aimed at encouragement or long-term support of business activities either in certain regions or industry sectors. Conditions to receive such assistance may not be specifically related to the operating activities of the entity. Examples of such assistance are transfers of resources by governments to entities which: (a) operate in a particular indust .....

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ties of the entity other than the requirement to operate in certain regions or industry sectors. Such grants shall therefore not be credited directly to shareholders interests. Appendix B References to matters contained in other Indian Accounting Standards This appendix is an integral part of the Ind AS. 1 Appendix C, Levies, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpos .....

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nt of such grants only at their fair value. Thus, the option to measure these grants at nominal value is not available under Ind AS 20. 2 IAS 20 gives an option to present the grants related to assets, including nonmonetary grants at fair value in the balance sheet either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. Ind AS 20 requires presentation of such grants in balance sheet only by setting up the grant as deferred inco .....

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