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

Gomti Pharma Ltd runs a loss-making unit. On 28 March 2025 the government sanctioned ₹30 lakh to the company as immediate financial support, with no future conditions or related costs. The amount became receivable on that date and was received in cash on 20 May 2025. The company's financial year ends on 31 March. How should the grant be accounted for?

The ₹30 lakh is recognised as income in the year ended 31 March 2025. Because it is immediate support with no future conditions or related costs, it is recognised in profit or loss in the period in which it becomes receivable, not when cash arrives.

  1. ARecognise ₹30 lakh as income in the year ended 31 March 2025, when it became receivableCorrect
  2. BRecognise ₹30 lakh as income in the year ended 31 March 2026, when the cash is received
  3. CDefer the ₹30 lakh and recognise it equally over the next five years
  4. DCredit ₹30 lakh directly to capital reserve

Explanation

A grant that is receivable as compensation for expenses or losses already incurred, or as immediate financial support with no future related costs, is recognised in profit or loss of the period in which it becomes receivable. The right arose on 28 March 2025, so it belongs to FY 2024-25, irrespective of the date of cash receipt. Recognition on receipt of cash conflicts with the accrual basis. Deferral or a credit to capital reserve is not permitted as there are no related future costs.

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