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

On 1 April 20X1, Aravali Foods Ltd received an interest-free loan of Rs 100 lakh from a State government, repayable in full as a single payment after 2 years. The market rate of interest for a similar loan is 10% p.a. Assume the loan is a financial liability at amortised cost, and the below-market benefit is a government grant as per Ind AS 20. At initial recognition, what are the loan's carrying amount and the grant amount (nearest Rs 0.01 lakh)?

The loan is recognised at Rs 82.64 lakh, the present value of Rs 100 lakh discounted for two years at 10%, and the Rs 17.36 lakh difference from the proceeds is the government grant. The benefit of the below-market interest rate is accounted for under Ind AS 20.

  1. ALoan Rs 100.00 lakh; grant nil
  2. BLoan Rs 80.00 lakh; grant Rs 20.00 lakh
  3. CLoan Rs 90.91 lakh; grant Rs 9.09 lakh
  4. DLoan Rs 82.64 lakh; grant Rs 17.36 lakhCorrect

Explanation

The loan is measured at fair value, i.e. the present value of Rs 100 lakh discounted at 10% for 2 years: 100/1.21 = Rs 82.64 lakh. The benefit of the below-market rate is the difference between the proceeds and this value: 100 - 82.64 = Rs 17.36 lakh, treated as a government grant. Option C discounts for only one year, and option B uses a simple 20% reduction instead of compound discounting.

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