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

On 1 April 2025, Himalaya Agro Ltd receives a Rs 100 lakh interest-free loan from a State government to set up a cold-storage unit. The loan is repayable in full as a single payment after 3 years. The market rate of interest for a similar loan is 10% per annum. Using (1.10)^3 = 1.331, what is the amount of the government grant, i.e. the benefit of the below-market-rate loan, measured under Ind AS 20 read with the financial instruments standard?

The grant is Rs 24.87 lakh. The interest-free loan is initially recorded at its present value, 100 divided by 1.331, which is Rs 75.13 lakh at the 10% market rate. The benefit of the below-market rate is the difference between the Rs 100 lakh received and that fair value.

  1. ARs 24.87 lakhCorrect
  2. BRs 75.13 lakh
  3. CRs 30.00 lakh
  4. DRs 33.10 lakh

Explanation

The loan is initially measured at fair value, the present value of Rs 100 lakh discounted at 10% for 3 years: 100 / 1.331 = Rs 75.13 lakh. The grant is the difference between the proceeds and this initial carrying amount: 100 - 75.13 = Rs 24.87 lakh. Rs 75.13 lakh is the loan's fair value, not the benefit. Rs 30 lakh is simple interest of 10% for 3 years. Rs 33.10 lakh is compound interest on Rs 100 lakh, which is the wrong base.

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