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
Conditional government grants repayable on breach should be recognised as deferred income under IAS 20 until conditions met A conditional government grant repayable on breach should not be credited to capital reserve. Under IAS 20 the grant related to assets may either reduce the carrying amount of the related asset or be recognized as deferred income and amortised to profit or loss over the useful life of the assets; however where repayment is likely or conditions are not yet satisfied, the grant should initially be recognised as a liability (deferred income) until conditions are met, then reclassified or released. Deducting the grant from asset cost lowers depreciation and affects tax/audit outcomes; recognising as deferred income preserves asset carrying value but recognises income over time. Choose the method consistent with grant terms, probability of fulfilment and disclosure requirements. (AI Summary)
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