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

On 1 April 2024, Narmada Textiles Ltd receives an interest-free government loan of ₹10,00,000 to modernise its plant. It is repayable as a single payment at the end of 3 years. The market rate of interest for a comparable loan is 10% p.a. (the present value factor for 3 years at 10% is 0.751315). Under Ind AS 20, what is the benefit of the below-market rate of interest to be treated as a government grant on initial recognition?

The benefit is ₹2,48,685. The loan is initially measured at its fair value, the present value of ₹10,00,000 discounted at 10% for three years, which is ₹7,51,315. The difference between the proceeds received and this fair value is treated as a government grant.

  1. A₹2,48,685Correct
  2. B₹3,00,000
  3. C₹1,73,554
  4. D₹7,51,315

Explanation

The loan is first measured at fair value under Ind AS 109: 10,00,000 × 0.751315 = ₹7,51,315. The benefit of the below-market rate is the difference between the proceeds and this initial carrying amount: 10,00,000 − 7,51,315 = ₹2,48,685. ₹3,00,000 is an undiscounted interest saving. ₹1,73,554 results from discounting for only two years. ₹7,51,315 is the loan's fair value, not the benefit.

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