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

Chambal Electronics Ltd received a sanction letter for a subsidy of Rs 30 lakh. The subsidy is payable only if the company creates 100 new jobs within the next 12 months. At the reporting date, only 20 jobs have been created, the hiring plan has been put on hold and management cannot demonstrate that it will meet the condition. No cash has been received. How should the company treat the subsidy under Ind AS 20?

The subsidy should not be recognised yet. Ind AS 20 requires reasonable assurance both that the entity will comply with the attached conditions and that the grant will be received. A sanction letter alone is insufficient, and management cannot demonstrate compliance with the job-creation condition.

  1. ARecognise the entire Rs 30 lakh as income because the sanction letter has been received
  2. BRecognise Rs 6 lakh as income, being the proportion of jobs created so far
  3. CRecognise income when the cash is received, irrespective of conditions
  4. DDo not recognise the grant until there is reasonable assurance that the company will comply with the conditions and that the grant will be receivedCorrect

Explanation

Ind AS 20 permits recognition of a government grant only when there is reasonable assurance that the entity will comply with the attached conditions and that the grant will be received. Receipt of a sanction letter alone does not give this assurance. Here compliance is doubtful, so no income is recognised. A proportionate recognition on jobs created (option B) has no basis because the grant depends on meeting the full condition.

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