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

Non-monetary Grants and Forgivable Loans under Ind AS 20

Updated 5 October 2026 · Fact-checked

Under Ind AS 20, a non-monetary grant is recorded at the fair value of the asset received. A forgivable loan is treated as a grant once forgiveness is reasonably assured. A below-market government loan is measured at fair value under Ind AS 109, and the difference from the proceeds is the grant. Then release that grant to profit or loss systematically.

Understand Non-monetary Grants and Forgivable Loans

Government help does not always come as cash. The government may give you land, a machine or a licence. It may lend you money that it may later waive. It may lend you money at a rate far below the market rate. Ind AS 20 tells you how to record each form.

Non-monetary grants. If the government transfers a non-monetary asset for your use, you assess its fair value. You then record both the asset and the grant at that fair value. The IAS 20 option to use a nominal amount is not available in Ind AS 20. The grant is recognised only when there is reasonable assurance that you will comply with the conditions and that the grant will be received.

Forgivable loans. A forgivable loan is a loan the lender undertakes to waive on meeting set conditions. It is treated as a grant when there is reasonable assurance that you will meet the forgiveness terms. Until then, it is a liability. If assurance is lacking, it stays a loan.

Below-market government loans. The government may lend you money at a rate below market. You measure the loan at its fair value on initial recognition, using the market rate to discount the contractual cash flows. This is done under Ind AS 109. The difference between the proceeds and that fair value is the benefit, and Ind AS 20 treats it as a government grant. The loan is then carried at amortised cost, with interest at the market rate.

Once you know the grant amount, the rest is Ind AS 20 logic. If the grant relates to an asset, including a non-monetary grant at fair value, Ind AS 20 allows you to present it in the balance sheet only as deferred income. The IAS 20 option to deduct the grant from the asset's carrying amount is not available. The profit or loss effect arrives over the asset's life. If the grant relates to income, match it with the costs it compensates.

Key rules to remember

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.

How to solve Non-monetary Grants and Forgivable Loans questions

Use this method for any question on non-monetary grants, forgivable loans or concessional government loans.

1Identify the form of assistance: asset transferred, loan with forgiveness, or loan at a low or nil rate.
2Check the recognition test: reasonable assurance that conditions will be met and the grant will be received.
3For a non-monetary asset, state its fair value. Record the asset and grant at that value.
4For a below-market loan, discount the contractual cash flows at the market rate to get the fair value. Grant = proceeds − fair value.
5For a forgivable loan, if forgiveness is reasonably assured, treat the amount as grant. If not, keep it as a liability.
6Decide whether the grant relates to an asset or to income. An asset-related grant is presented only as deferred income under Ind AS 20. An income-related grant is matched with the costs it compensates.
7Compute the yearly release to profit or loss, and the finance cost on the loan at the effective rate.
8Write the journal entries and the balance sheet and profit or loss effect for the year asked.

Quickest way: Three-line shortcut for loan questions

When to use it: Use it when the question gives a loan, a stated rate and a market rate, and asks for the grant or first-year charge.

Line 1: Fair value = PV of interest annuity + PV of principal at the market rate. Grant = proceeds − fair value.
Line 2: Finance cost = opening carrying amount × market rate. Closing = opening + finance cost − cash paid.
Line 3: Annual grant release = grant ÷ useful life (asset-related) or matched to the cost period (income-related).
For a non-monetary grant, skip the discounting. Just use fair value and link the release to depreciation.

Common mistakes in Non-monetary Grants and Forgivable Loans

Recording a free asset at nil or a nominal amount
Students remember the IAS 20 alternative of 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
The stated rate is given prominently in the question.
Fix: Discount at the market rate for a similar loan. The stated rate only gives you the cash flows.
Taking the whole loan proceeds as grant
Students confuse a concessional loan with a forgivable loan.
Fix: For a concessional loan, only the benefit (proceeds − fair value) is a grant. The loan itself stays a liability.
Crediting the whole grant to profit or loss on day one
Students treat the grant as income when received.
Fix: Release the grant systematically over the periods in which the related costs or depreciation arise.
Treating a forgivable loan as a grant without checking assurance
The word 'forgivable' makes students assume the waiver will occur.
Fix: Check for reasonable assurance of meeting the forgiveness conditions. Without it, keep the loan as a liability.
Calculating finance cost on the face value of the loan
Students ignore amortised cost.
Fix: Apply the market (effective) rate to the opening carrying amount, which is the fair value at first and then rolls forward.

Worked examples

Example 1

On 1 April 2026, a State government transfers to Vihaan Ltd a machine free of cost to set up a plant in a notified zone. The machine has a fair value of ₹50,00,000, a useful life of 10 years and nil residual value. The company uses straight-line depreciation and there is reasonable assurance that it will meet all conditions. Show the accounting for 2026-27.

Show the solution

The grant is non-monetary and relates to an asset. Record the asset and the grant at fair value: ₹50,00,000.
On receipt: Dr Property, plant and equipment ₹50,00,000; Cr Deferred income (grant) ₹50,00,000.
Depreciation for the year = ₹50,00,000 ÷ 10 = ₹5,00,000. Charge it to profit or loss.
Release of deferred income = ₹50,00,000 ÷ 10 = ₹5,00,000 (in line with depreciation). Dr Deferred income, Cr Other income ₹5,00,000.
Net effect on profit or loss for the year = ₹5,00,000 income − ₹5,00,000 depreciation = nil.
Closing balances: machine ₹45,00,000; deferred income ₹45,00,000, split between current and non-current as per Schedule III.

Answer: Machine and deferred income are both recognised at ₹50,00,000. For 2026-27, depreciation is ₹5,00,000 and grant income is ₹5,00,000, with nil net profit effect. Ind AS 20 allows the grant to be presented only as deferred income, so the machine is not reduced by the grant.

Example 2

On 1 April 2026, Dhruv Ltd receives a ₹1,00,00,000 government loan to buy plant with a 10-year useful life. Interest is 3% p.a. payable annually, and the principal is repayable on 31 March 2031. The market rate for a similar loan is 8%. Discount factors at 8%: year 5 = 0.680583, annuity for 5 years = 3.992710. Compute the grant, the first-year finance cost and the first-year grant release. Round to the nearest rupee.

Show the solution

Annual interest cash flow = 3% × ₹1,00,00,000 = ₹3,00,000.
PV of interest = ₹3,00,000 × 3.992710 = ₹11,97,813.
PV of principal = ₹1,00,00,000 × 0.680583 = ₹68,05,830. (Computing from 1 ÷ 1.469328 gives ₹68,05,832; use the factor as given.)
Fair value of loan = ₹11,97,813 + ₹68,05,830 = ₹80,03,643.
Grant = ₹1,00,00,000 − ₹80,03,643 = ₹19,96,357. Dr Cash ₹1,00,00,000; Cr Loan ₹80,03,643; Cr Deferred income ₹19,96,357.
First-year finance cost = ₹80,03,643 × 8% = ₹6,40,291. Closing loan = ₹80,03,643 + ₹6,40,291 − ₹3,00,000 = ₹83,43,934.
Grant release = ₹19,96,357 ÷ 10 years = ₹1,99,636, in line with depreciation of the plant.

Answer: Grant (deferred income) is ₹19,96,357. First-year finance cost is ₹6,40,291. Grant release is ₹1,99,636. The loan is carried at ₹83,43,934 at 31 March 2027.

Exam tips

Write the fair value of the non-monetary asset first and state that the grant is recorded at the same amount. Mention that nominal amount is not allowed under Ind AS 20.
For loan questions, always show the discounting table and the line 'Grant = Proceeds − Fair value'. Marks follow the working.
Say 'reasonable assurance' in every answer on forgivable loans. Link the treatment to whether the forgiveness conditions will be met.
In case-scenario MCQs, check the discount rate used. The market rate gives fair value; the stated rate only gives the cash flows.
State that under Ind AS 20 an asset-related grant is presented only as deferred income, and show the profit or loss effect: release in line with depreciation.

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

Non-monetary Grants and Forgivable Loans in other exams

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

Non-monetary Grants and Forgivable Loans: frequently asked questions

How is a non-monetary government grant measured under Ind AS 20?

You assess the fair value of the asset received. Both the asset and the grant are recorded at that fair value. The nominal amount option in IAS 20 is not available in Ind AS 20.

When does a forgivable government loan become a grant?

It becomes a grant when there is reasonable assurance that you will meet the conditions for forgiveness. Until that assurance exists, it remains a loan liability. If assurance changes later, the treatment is revised as a change in estimate.

How do I account for an interest-free government loan under Ind AS 20 and Ind AS 109?

Measure the loan at fair value by discounting the repayments at the market rate. The difference between the proceeds and that fair value is the government grant. The loan is then carried at amortised cost and interest is charged at the market rate.

Is the grant on a below-market loan related to assets or income?

It depends on what the loan funds. If it funds an asset, treat it as an asset-related grant and release it over the asset's life. If it funds expenses, release it over the periods in which those costs are recognised.