Financial Reporting · Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance

Grants Related to Assets and Income under Ind AS 20

Updated 5 October 2026 · Fact-checked

Under Ind AS 20, a grant related to assets is given to buy, build or acquire a long-term asset. You present it either as deferred income or by deducting it from the asset's carrying amount, and release it over the asset's life. An income-related grant goes to profit or loss as other income or is deducted from the related expense.

Understand Grants Related to Assets and Income

A government grant is assistance from the government in return for past or future compliance with conditions. Ind AS 20 does not ask only whether to recognise a grant. It also asks where the grant appears in the financial statements. That depends on what the grant is for.

Grants related to assets are grants whose main condition is that the entity buys, constructs or otherwise acquires long-term assets. They may also carry side conditions, such as the location of the asset or the period it must be held. Ind AS 20 allows two presentation methods. In Method 1 you show the grant as deferred income in the balance sheet and recognise it in profit or loss on a systematic and rational basis over the useful life of the asset. In Method 2 you deduct the grant from the carrying amount of the asset when you arrive at that carrying amount. The grant is then recognised in profit or loss over the life of a depreciable asset through a reduced depreciation charge.

Grants related to income are all grants other than those related to assets. You recognise them in profit or loss on a systematic basis over the periods in which the entity recognises the related costs that the grant is meant to compensate. You may present them in one of two ways: as a credit under a general heading such as other income, or as a deduction from the related expense. Both are acceptable. Ind AS 20 says each is acceptable, and disclosure may be needed if the effect is material.

The total profit or loss effect over the asset's life is the same under both asset methods. Only the presentation changes. Under the deferred income method, gross depreciation is charged and the grant is released as income. Under the deduction method, depreciation is lower and the asset is shown at a lower figure. Total assets, depreciation and some ratios differ, so the choice matters in case questions.

The cash flow treatment also has a link. Under Ind AS 7, the cash paid to buy the asset is shown at the gross amount as an investing outflow. The grant receipt is classified by its nature: a receipt of an asset-related grant is usually shown in investing activities, and a receipt of an income-related grant in operating activities. Do not present this as a fixed rule of Ind AS 7. In a case question, state the classification you choose and the reason for it. Keep this in mind when a question links both topics.

Key rules to remember

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.

How to solve Grants Related to Assets and Income questions

Use this method for any question on classification and presentation of grants.

1Read the purpose of the grant. Is the main condition to buy or build a long-term asset? If yes, it is an asset-related grant. If not, it is an income-related grant.
2Check that recognition criteria are met. There must be reasonable assurance that the entity will comply with the conditions and that the grant will be received. Without it, you recognise nothing yet.
3For an asset grant, see which method the question requires or allows. If the question is silent, you may state both and show the one you choose.
4For Method 1, record the asset at full cost, credit the grant to deferred income, and release it over the asset's useful life. Show depreciation on full cost separately.
5For Method 2, reduce the asset's cost by the grant. Compute depreciation on the reduced amount and show the net carrying amount at each year end.
6For an income grant, identify the costs it compensates and the periods in which those costs arise. Match the grant to those periods and choose a presentation: other income or deduction from the expense.
7Split the deferred income into current and non-current portions if the balance sheet is asked for. The amount to be released within twelve months is current.
8State the final figures clearly: profit or loss charge, carrying amount of the asset and deferred income balance at the reporting date.

Quickest way: Classify, then choose the presentation

When to use it: Use this when you have a few minutes and the question asks for the treatment or the year-end balances.

Write A for asset-related or I for income-related, based on the purpose of the grant.
For A, divide grant by useful life to get the yearly release. Divide cost by useful life to get gross depreciation. Use the number of months if the asset was acquired part-way through the year.
Method 1 balance: deferred income = grant − releases so far. Asset = cost − gross depreciation so far.
Method 2 balance: asset = (cost − grant) − depreciation on the net amount. No deferred income appears.
Check: profit impact under both methods should be the same each year. If not, recheck your arithmetic.
For I, match the grant to the expense periods. Then say other income or deduction from the expense.

Common mistakes in Grants Related to Assets and Income

Treating every grant received in cash as income of the year in which it is received.
Students link recognition to cash receipt, as in simple cash accounting.
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.
Students mix up Method 1 and Method 2.
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.
Releasing the whole deferred income in the year the asset is bought.
Students think the grant is earned when received.
Fix: The release follows the asset's useful life. For a depreciable asset it follows the depreciation pattern.
Showing the grant as a reduction of equity or as a capital reserve.
Old practice under earlier Indian GAAP allowed credit to capital reserve for some grants.
Fix: Ind AS 20 does not allow crediting grants directly to shareholders' interest. Use deferred income or deduct from the asset.
Treating a grant as asset-related just because it was received near the time of buying an asset.
Students focus on timing instead of the condition attached.
Fix: Look at the main condition. If the grant is for running costs, it is income-related even if an asset is purchased at the same time.
Showing the whole deferred income as non-current.
Students forget the current and non-current split.
Fix: The part to be released in the next twelve months is shown as current, and the rest as non-current, as per the general classification rules of Ind AS 1.

Worked examples

Example 1

Case: Shree Textiles Ltd, an Ind AS company, buys a machine on 1 April 2026 for ₹50,00,000. It receives a government grant of ₹10,00,000 for buying this machine, with reasonable assurance that conditions are met. The machine has a useful life of 5 years, nil residual value, and is depreciated on the straight-line method. Show the effect on the financial statements for the year ended 31 March 2027 under both permitted methods.

Show the solution

The grant is given to buy a machine, so it is a grant related to assets.
Method 1, deferred income. Depreciation on full cost = ₹50,00,000 ÷ 5 = ₹10,00,000 per year.
Grant release = ₹10,00,000 ÷ 5 = ₹2,00,000 per year, credited to profit or loss as other income.
At 31 March 2027, the machine's carrying amount = cost ₹50,00,000 − gross depreciation ₹10,00,000 = ₹40,00,000. The grant is not deducted from the asset under this method.
Deferred income at 31 March 2027 = ₹10,00,000 − ₹2,00,000 = ₹8,00,000. Of this, ₹2,00,000 is current and ₹6,00,000 is non-current.
Net profit or loss effect for the year = ₹10,00,000 depreciation − ₹2,00,000 income = ₹8,00,000 charge.
Method 2, deduction. Carrying amount at acquisition = ₹50,00,000 − ₹10,00,000 = ₹40,00,000.
Depreciation = ₹40,00,000 ÷ 5 = ₹8,00,000 per year.
At 31 March 2027, the carrying amount = ₹40,00,000 − ₹8,00,000 = ₹32,00,000. No deferred income is shown.
Net profit or loss charge = ₹8,00,000, the same as in Method 1.

Answer: Method 1: depreciation ₹10,00,000, other income ₹2,00,000, machine ₹40,00,000 (cost less gross depreciation), deferred income ₹8,00,000. Method 2: depreciation ₹8,00,000, machine ₹32,00,000, no deferred income. Net charge to profit is ₹8,00,000 under both.

Example 2

Case: Kaveri Foods Ltd (an Ind AS company) receives a government grant of ₹12,00,000 in cash on 1 July 2026 to support its employee training programme. The full amount is received on that date. The programme runs for 12 months from 1 July 2026 to 30 June 2027, and the cost is expected to be incurred evenly. Conditions are met and receipt is assured. Total training cost is ₹18,00,000. The year end is 31 March. Explain the classification and show the amounts for the year ended 31 March 2027.

Show the solution

The grant supports a training programme and not the purchase of a long-term asset. It is a grant related to income.
It must be matched with the costs it compensates. These costs arise evenly over 12 months.
From 1 July 2026 to 31 March 2027 is 9 months. Training cost recognised = ₹18,00,000 × 9 ÷ 12 = ₹13,50,000.
Grant recognised in profit or loss = ₹12,00,000 × 9 ÷ 12 = ₹9,00,000.
The full ₹12,00,000 was received in cash on 1 July 2026, before the related costs are incurred. So the remaining ₹3,00,000 (₹12,00,000 − ₹9,00,000) relates to April to June 2027 and is carried as deferred income at the year end. It is shown as a current liability since it will be released within twelve months. It will be released against the April to June 2027 training cost of ₹4,50,000 (₹18,00,000 × 3 ÷ 12), which is not yet recognised in the year ended 31 March 2027.
Presentation option 1: show ₹9,00,000 as other income, with training expense of ₹13,50,000 shown gross.
Presentation option 2: deduct ₹9,00,000 from training expense, showing a net expense of ₹4,50,000.
Either way, profit before tax is lower by ₹4,50,000 from this programme for the year (₹13,50,000 − ₹9,00,000).

Answer: It is an income-related grant. The full ₹12,00,000 was received in cash on 1 July 2026. ₹9,00,000 is recognised in the year ended 31 March 2027, either as other income or as a deduction from training expense (net ₹4,50,000). The unrecognised ₹3,00,000 is deferred income, current, at the year end. It will be released against the April to June 2027 training cost of ₹4,50,000, which is not yet recognised.

Exam tips

In case-scenario MCQs, first decide asset-related or income-related from the main condition. Many options are built on that single point.
In written answers, name both permitted methods for asset grants and then apply the one asked. If the question allows a choice, show both, since the net profit effect is the same and it is easy to check.
Always show the balance sheet figures at the year end, not only the profit or loss charge. Marks are often given for deferred income and carrying amount.
Show the current and non-current split of deferred income when a balance sheet extract is asked.
Write one line citing the recognition condition, reasonable assurance of compliance and receipt, before any working. It is a quick mark.

Practice questions from Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance

Grants Related to Assets and Income in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Grants Related to Assets and Income: frequently asked questions

Which method is better for asset-related grants under Ind AS 20, deferred income or deduction?

Ind AS 20 allows both, and neither is preferred. The total profit effect over the asset's life is the same. Choose one as an accounting policy and apply it consistently, unless the question tells you which to use.

What is the difference between grants related to assets and grants related to income?

A grant related to assets has a main condition that the entity buys, builds or acquires long-term assets. All other grants are related to income. The first is spread over the asset's life, and the second is matched with the costs it compensates.

Can an income-related grant be shown as a deduction from expense?

Yes. Ind AS 20 permits presenting it either as other income or as a deduction from the related expense. Both are acceptable, and you should disclose it separately where the effect is material.

How does a grant for a depreciable asset reach profit or loss?

Under the deferred income method it is released to income over the useful life, in line with depreciation. Under the deduction method it reduces the depreciation charge. In both cases the recognition follows the life of the asset.