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

Kaveri Pharma Ltd sells medicines to a State Government hospital at the same prices charged to private hospitals, under normal trading terms. The accountant proposes to treat the sales proceeds as a government grant. Under the Ind AS 20 definition of government grants, what is the correct view?

The sales are not government grants. Ind AS 20 excludes from government grants those transactions with government that cannot be distinguished from the entity's normal trading transactions. Sales at ordinary market prices to a government hospital are normal trading, so the identity of the buyer does not turn them into grants.

  1. ATreat the excess over cost as a grant since the buyer is the government
  2. BTreat the entire sale as a grant because government is the counterparty
  3. CTreat it as a grant only if payment is received in advance
  4. DIt is not a government grant because transactions with government that cannot be distinguished from normal trading transactions are excludedCorrect

Explanation

The definition of government grants excludes transactions with government which cannot be distinguished from the entity's normal trading transactions. Sales at ordinary prices are such transactions, so they are accounted for under the applicable revenue standard. Option A wrongly makes the counterparty the test.

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