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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 Steel Ltd bought a machine for Rs 10,00,000 with a useful life of 5 years and nil residual value, and received a related government grant of Rs 2,00,000. The company presents the grant as deferred income and recognises it in profit or loss over the asset's life. On 31 March 20X3, because of a breach of conditions, the entire grant becomes repayable and is repaid. What amount is recognised immediately in profit or loss on repayment?

Rs 80,000 is charged to profit or loss. The repayment is first set against the unamortised deferred income of Rs 1,20,000, and the remaining Rs 80,000, equal to the grant already credited to income over two years, is recognised immediately as an expense.

  1. ARs 2,00,000
  2. BRs 1,20,000
  3. CRs 80,000Correct
  4. DNil

Explanation

Grant income recognised in two years is 2,00,000/5 x 2 = Rs 80,000, so the deferred income balance is Rs 1,20,000. A repayment of a grant related to an asset is treated as a change in accounting estimate and is first applied against the unamortised deferred income. The excess, 2,00,000 - 1,20,000 = Rs 80,000, is recognised immediately in profit or loss. Charging the full Rs 2,00,000 ignores the deferred balance available.

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