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

On 1 April 2024, Godavari Power Ltd bought equipment for Rs 500 lakh and received a related government grant of Rs 100 lakh. It deducted the grant in arriving at the carrying amount, so depreciation is charged on Rs 400 lakh over 5 years, straight-line, with nil residual value. On 31 March 2026 the grant becomes fully repayable because a condition was breached. What amount must be recognised immediately in profit or loss on account of the repayment, under Ind AS 20?

Rs 40 lakh is charged immediately to profit or loss. Repayment of an asset grant is a change in estimate, and the extra depreciation that would have been charged over the two elapsed years, Rs 20 lakh a year, is recognised at once. The balance of the repayment adds to the asset's carrying amount.

  1. ARs 100 lakh, being the whole amount repaid
  2. BRs 60 lakh, being the portion relating to the remaining 3 years
  3. CRs 40 lakh, being the cumulative additional depreciation that would have been charged to date had the grant not been receivedCorrect
  4. DNil, because the repayment is only added to the asset's carrying amount and depreciated prospectively

Explanation

Repayment of a grant related to an asset is treated as a change in accounting estimate. The repayment increases the carrying amount of the asset, and the cumulative additional depreciation that would have been recognised to date without the grant is charged immediately. Depreciation without the grant would be Rs 500 lakh / 5 = Rs 100 lakh a year, against Rs 80 lakh actually charged, so Rs 20 lakh extra a year. For 2 years this is Rs 40 lakh. Carrying amount: Rs 240 lakh + Rs 100 lakh - Rs 40 lakh = Rs 300 lakh, which equals cost less 2 years at Rs 100 lakh.

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