CA Final · Financial Reporting

Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance: formula sheet

Full chapter guide

Key formulas

Government grant (definition): Government grant = transfer of resources to an entity in return for past or future compliance with conditions relating to operating activities; Learn the three parts: transfer of resources, conditions, operating activities. The benefit of a below-market government loan is also a grant.
Assistance vs grant: Government grants ⊂ Government assistance; Every grant is assistance. Assistance with no reasonably measurable value (such as free advice or a loan guarantee), or indistinguishable from normal trading, is not a grant.
Below-market government loan: Grant = Proceeds received − Fair value of the loan (initial carrying amount under Ind AS 109); Applies to a government loan at a below-market rate of interest (para 10A). The loan is measured under Ind AS 109 and the grant is the difference between the proceeds and that initial carrying amount.
Scope exclusions: Excluded: changing-prices effects; tax-based benefits (Ind AS 12); government ownership participation; grants under Ind AS 41; Four exclusions. Tax holidays, investment tax credits and reduced tax rates go to Ind AS 12.
Ind AS vs IAS 20 (non-monetary grants): Non-monetary grant → measured at fair value (nominal amount option not available in Ind AS 20); Key difference from IAS 20.
Ind AS vs IAS 20 (asset-related grants): Grant related to an asset → presented as deferred income (deduction from asset's carrying amount not available); Key difference from IAS 20.
Recognition test: Recognise grant only if: reasonable assurance of (1) compliance with conditions AND (2) receipt of the grant; Both limbs must be met. Receipt of cash alone is not enough.
Income approach: Grant income for a period = Grant × (Related cost expensed in the period ÷ Total related cost over the grant period); For an asset grant with straight-line depreciation, this equals Grant ÷ useful life per year.
Grant for costs already incurred: Recognise in profit or loss in the period in which the grant becomes receivable; Applies to compensation for past expenses or losses, or immediate support with no future related costs.
No direct credit to equity: Grants are recognised in profit or loss, not credited directly to shareholders' interests (reserves); Ind AS 20 follows the income approach, not the capital approach.
Asset-related grant, Method 1 (deferred income): Annual income release = Grant ÷ Useful life (straight-line pattern of depreciation); Depreciation is charged on the full cost. Deferred income is shown in the balance sheet and reduces each year by the release. Release should follow the pattern in which the asset's benefits are consumed.
Asset-related grant, Method 2 (deduction): Depreciable amount = (Cost of asset − Grant) − Residual value; Annual depreciation = Depreciable amount ÷ Useful life; The asset's carrying amount is shown net of the grant. Depreciation is charged on the net amount.
Equivalence of the two methods: Net effect on profit = Gross depreciation − Grant release = Depreciation on (Cost − Grant); This holds when both use the same straight-line basis and the residual value is nil. With a residual value, take care in how the release is spread.
Income-related grant: Recognise in profit or loss in the periods when the related costs are recognised; Present as other income, or deduct from the related expense.
Unconditional compensation for past losses: Recognise in profit or loss of the period in which it becomes receivable; This applies to a grant that compensates expenses or losses already incurred, or gives immediate financial support with no future related costs.
Non-monetary grant: Asset and grant both recorded at fair value of the asset received; Dr Asset, Cr Deferred income. Ind AS 20 does not permit the nominal amount option or the deduction of the grant from the asset's carrying amount.
Forgivable loan: Treat as grant if reasonable assurance of meeting forgiveness terms; otherwise treat as loan; Reassess at each reporting date. A change in assurance is a change in estimate.
Benefit of below-market loan: Grant = Proceeds received − Fair value of loan at initial recognition; Fair value = present value of contractual cash flows at the market rate (Ind AS 109).
Subsequent loan measurement: Closing carrying amount = Opening + Interest at market rate (effective rate) − Cash paid; Finance cost is at the market (effective) rate, not the stated rate.
Grant release: Release to profit or loss on a systematic basis over the periods in which the related costs are recognised; For depreciable assets, release in proportion to depreciation.

Quick revision

Grant recognition needs reasonable assurance of both compliance with conditions and receipt of the grant.
A grant is recognised in profit or loss on a systematic basis over the periods the related costs are expensed.
Receipt of a grant alone is not conclusive evidence that the conditions are met.
Under Ind AS 20, grants related to assets are presented in the balance sheet as deferred income and recognised in profit or loss on a systematic basis over the asset's useful life. The deduction method is not permitted.
The asset is depreciated at its full cost; the deferred income is released separately to profit or loss.
Income grants are presented either as other income or as a deduction from the related expense.
A grant that becomes receivable as compensation for losses already incurred, or for immediate support with no future costs, is recognised in profit or loss of the period it becomes receivable.
Under Ind AS 20, a non-monetary grant (such as land) is recognised at its fair value. The IAS 20 nominal-amount option is not available in Ind AS.
A forgivable loan is treated as a grant when there is reasonable assurance that the entity will meet the forgiveness terms.
A government loan at a below-market rate is measured under the loan standard, and the benefit is treated as a grant.
Repayment of a grant is accounted for as a change in accounting estimate.
Disclose the accounting policy, the nature and extent of grants recognised, and unfulfilled conditions or contingencies.

Common mistakes

Treating all government assistance as a government grant. Fix: Remember that grants are a subset. Free advice, guarantees and benefits that cannot be valued are assistance only.
Treating a below-market government loan as mere assistance, not a grant. Fix: A government loan at a below-market interest rate is a grant, measured as proceeds less the Ind AS 109 fair value of the loan. Only a guarantee is assistance without a value.
Recognising the grant as income when cash is received. Fix: Test reasonable assurance of compliance and receipt first. Cash with unmet or doubtful conditions is not income.
Crediting the grant straight to capital reserve. Fix: Remember Ind AS 20 uses the income approach. Grants are recognised in profit or loss over the periods of the related costs, not credited directly to shareholders' interests.
Treating every grant received in cash as income of the year in which it is received. Fix: Ind AS 20 uses the accruals approach. Match the grant to the costs it is meant to compensate or to the life of the asset.
Charging depreciation on the full cost under the deduction method. Fix: Under Method 2 the asset is already reduced by the grant, so depreciation is on the reduced amount. Under Method 1 depreciation is on full cost.
Recording a free asset at nil or a nominal amount Fix: Under Ind AS 20, record the asset and the grant at the fair value of the asset.
Discounting the loan at the stated government rate Fix: Discount at the market rate for a similar loan. The stated rate only gives you the cash flows.

Exam tips

Learn the exact wording of the three definitions. Short-note questions on 'government', 'government assistance' and 'government grants' reward precise language.
Always list all four exclusions when asked about scope. Mention Ind AS 12 and Ind AS 41 by number.
For case MCQs, find the one fact that triggers an exclusion, such as a tax holiday or an agriculture grant.
For a difference question on Ind AS 20 and IAS 20, state the two differences: fair value for non-monetary grants, and deferred income presentation for asset-related grants. Then add any other points from the current ICAI text. If you mention the below-market government loan (para 10A), say that the treatment is the same as in IAS 20 and only the reference changes from IFRS 9 to Ind AS 109.
Write in provision-facts-conclusion form even for a two-mark answer.
Always state both limbs of reasonable assurance: compliance with conditions and receipt of the grant. Examiners award marks for both.
In case scenarios, read the conditions closely. A clawback or unmet condition often signals that income cannot yet be recognised.
Write the matching logic in words: grant follows the related cost. Then show the proportion working.