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

On 1 April 20X1, Kaveri Engineering Ltd received from a State Government, free of cost, a machine whose fair value was ₹50 lakh, to encourage manufacturing in a backward district. There is reasonable assurance that the company will comply with the attached conditions. The machine has a useful life of 5 years with nil residual value and is depreciated on the straight-line method. The company presents the grant as deferred income. What is the amount credited to profit or loss for the year ended 31 March 20X2 on account of the grant, and the deferred income balance at that date?

Income of ₹10 lakh is credited to profit or loss and deferred income stands at ₹40 lakh. The machine is recorded at its fair value of ₹50 lakh and the grant is released systematically over the five-year life, in line with depreciation, so one-fifth is recognised each year.

  1. AIncome ₹50 lakh; deferred income nil
  2. BIncome ₹10 lakh; deferred income ₹40 lakhCorrect
  3. CIncome ₹10 lakh; deferred income ₹50 lakh
  4. DIncome ₹5 lakh; deferred income ₹45 lakh

Explanation

A non-monetary grant is recorded at fair value of ₹50 lakh, with the asset and the grant recognised together. The grant is recognised in profit or loss on a systematic basis over the useful life, which here matches depreciation: ₹50 lakh / 5 = ₹10 lakh a year. Closing deferred income is ₹50 lakh - ₹10 lakh = ₹40 lakh. Recognising the whole grant at once ignores the matching with depreciation.

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