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

On 1 April 2021, Kaveri Engineering Ltd bought a machine for ₹100 lakh with an estimated useful life of 10 years and nil residual value, using straight-line depreciation. It received a government grant of ₹20 lakh for the machine and presents it as deferred income, released to profit or loss over the machine's life. On 31 March 2025, after four years, the grant became repayable in full because a condition was breached. Ignoring tax, what amount should be charged immediately to profit or loss on the repayment?

₹8 lakh is charged to profit or loss. After four years the deferred income balance is ₹12 lakh, which is set off against the ₹20 lakh repayment. The excess of ₹8 lakh equals the grant income already recognised and must be expensed immediately.

  1. A₹8 lakhCorrect
  2. B₹12 lakh
  3. C₹20 lakh
  4. DNil

Explanation

Annual release of the grant is ₹2 lakh, so after four years ₹8 lakh has been taken to income and the deferred income balance is ₹12 lakh. The repayment of ₹20 lakh is first applied against the unamortised deferred income of ₹12 lakh. The remaining ₹8 lakh, being the cumulative amount already recognised as income that would not have been recognised had the grant not been received, is charged to profit or loss immediately. Charging ₹12 lakh confuses the balance of deferred income with the excess.

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