Manual - ICDS VII : Government Grants

Under any circumstances, the revenue recognition cannot be deferred beyond the date of receipt. However, paras 11 and 12 of the ICDS which deal with refund of grants provide that grants sometimes become refundable because the attached conditions are not fulfilled. Refund of government grants would require reversal of treatment carried out at the time of its initial recognition. The ICDS requires that in the event of  reversal of government grant, it has to be first applied to unamortized deferred credit. Therefore, the ICDS visualizes situations wherein the entire grant ‘received’ is not recognised as income but parked as unamortized deferred credit account. Thereby, income recognition should factor both receipt as well certainty in complying with the attached conditions to recognise grants as income. This aligns with the real income theory which  mandates that income recognition cannot be based on contingencies. Hence, the recognition of government grants cannot be deferred beyond date of receipt.

 

Recognition of government grants: must occur on receipt; potential reversals are applied against unamortized deferred credit balances. ICDS VII requires government grants to be recognised on the date of receipt and prohibits deferral beyond receipt; where grants become refundable because attached conditions are unmet, reversal of initial recognition must first be applied to the unamortized deferred credit arising from the grant, so income recognition must reflect both receipt and the certainty of meeting conditions.