IAS 12, 20 accounting of Grant in aid

[Jayanta Bandyopadhyay]

We have commissioned a new tea manufacturing plant in Assam and under CEFPPC & APC Projects, Central Govt will contribute a grant in aid of Rs. 5 Crores. Grant is not related to a specific fixed asset but to an overall kitty.

How to account for this conditional Grant-in-aid, as in case of breach of any condition, Govt will take back this grant.

Reduction of assets value by the grant -in-aid amount may disrupt true value of assets and consequential depreciation and Tax Audit etc.

Capital Reserve - is it lawfully ok as per AS 12, 20?

Showing as deferred income over a period -may distort true business performance.

Kindly advise how to proceed with.

Thanks and regards,

J Bandyopadhyay

[Ryan Vaz]

? Do NOT reduce the value of fixed assets
? Do NOT credit directly to Capital Reserve at inception
? Correct treatment:
?? Initially record the grant as “Deferred Government Grant / Refundable Grant (Liability)”
?? Recognise it as Capital Reserve (or Income) only when conditions are substantially complied with

This approach is fully compliant with AS 12 / Ind AS 20, preserves true asset values, and avoids audit and tax distortions.

AI Summary

Government grant accounting: record conditional grants as deferred liabilities and recognise as reserve only upon substantial compliance. Do not reduce fixed asset carrying amounts or credit the grant directly to Capital Reserve at inception. Initially record the conditional grant as a deferred government grant/refundable liability and recognise it as Capital Reserve or income only when the grant conditions are substantially complied with, thereby preserving asset values and avoiding distortion of depreciation and financial reporting.