Webinar Series on Ind AS - Institute of Cost Accountants ...

Webinar Series on Ind AS

By CMA Milind Date

M Com, FCMA, CMA (USA), Dip IFRS (ACCA UK)

29-06-2020 CMA Milind Date 1

Ind AS 20 Govt Grants


Objective & Scope


• accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assistance.

Objective

• Government assistance that is provided for an entity

• in the form of benefits that are available in determining taxable profit or tax loss, or are determined or limited on the basis of income tax liability.

• Examples of such benefits are income tax holidays, investment tax credits, accelerated depreciation

• Government participation in the ownership of the entity

• Government grants covered by Ind AS 41, Agriculture

Scope

Definitions

• Refers to government, government agencies, & similar bodies whether local, national or international

Government

• is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria

• does not include benefits provided only indirectly through action affecting general trading conditions, such as the provision of infrastructure in development areas or the imposition of trading constraints on competitors

Govt assistance

• assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity

• exclude those forms of government assistance which cannot reasonably have a value placed

• Can also be referred as subsidies, subventions or premiums

Govt grant


Definitions

• whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets

• Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held

Grants related to assets

• other than those related to assets

Grants related to income

• loans which the lender undertakes to waive repayment of under certain prescribed conditions

• Treated as govt grant when there is reasonable assurance that entity will meet terms for forgiveness of the loan

Forgivable loans


Recognition criteria for grants (including non-monetary grants measured @ FV)

• The entity will comply with the condition attaching to them

• The grants will be received

Recognised if there’s a reasonable assurance that

Just receipt of grant does not mean assurance about fulfilment of conditions

Grant may be received in cash or by way of reduction in liability to the govt.

Benefit in the form of govt loan at concessional interest rate is considered as govt grant

Once a grant is recognised, any related contingent liability is treated according to Ind AS 37


Non-monetary grants

In the form of a transfer of a non-monetary asset, such as land or other resources, for the use of the entity

• Non-monetary asset and grant at the fair value.

• Record both asset and grant at a nominal amount

Alternative treatments permitted


Grant in the form of concessional loan

The benefit of a government loan at a below-market rate of interest is treated as a government grant.

The loan shall be recognised and measured in accordance with Ind AS 109

The benefit of the below-market rate of interest shall be measured as the difference between the initial carrying value of the loan determined in accordance with Ind AS 109, and the proceeds received.

The entity shall consider the conditions and obligations that have been, or must be, met when identifying the costs for which the benefit of the loan is intended to compensate


Presentation

In BS, PL & CF

Grants related to Assets -- 2 alternatives permitted in BS & PL

- Separately shown in CF

1. Set up as deferred income

- Recognise in PL on systematic basis over asset life

2. Reduction from asset value

- Recognised in PL through reduced depreciation charge

Grants related to income – 2 alternative treatments permitted

Either separately or under the heading “other income”

As a deduction from related expense


Repayment of grants

Grant that becomes repayable shall be accounted for as a change in accounting estimate (Ind AS 8)

• shall be applied first against any unamortised deferred credit in BS

• any remainder over that shall be recognised immediately in the PL

Repayment of a grant related to income

• shall be recognised by increasing the carrying amount of the asset or,

• reducing the deferred income balance by the amount repayable.

• The cumulative additional depreciation that would have been recognised in profit or loss to date in the absence of the grant shall be recognised immediately in profit or loss

Repayment of a grant related to an asset


Example

A Ltd. is a registered SEZ/STP unit which receives benefits in the form of exemption from payment of indirect taxes and duties on import or export of goods upon fulfilment of certain conditions under a scheme of the Government of India.

Is such a benefit received by A Ltd. a government grant?

If it is a government grant, is it a grant related to asset or a grant related to income?

• A ltd is eligible for the assistance based on past compliance of conditions

• A ltd gets economic benefits from reduction in liability to the govt.

• This is a govt grant

• Whether related to asset or income– Judgement required

– Classified depending on what “goods” are imported

– If assets are imported, it’s related to assets, otherwise to income


Disclosures - Cipla

• (iv) New and amended standards adopted by the Company– The Company has applied the following standards and amendments

for the first time for their annual reporting period commencing 1 April 2018:

• Ind AS 115, Revenue from Contracts with Customers

• Amendment to Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance

• 1.12 Government grants– Export entitlement from Government authority are recognised in the

profit or loss as other operating revenue when the right to receive is established as per the terms of the scheme in respect of the exports made by the Company and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds


Disclosures - Cipla


$ Government grants pertain to subsidy on PPE of manufacturing set up. There are no unfulfilled conditions or contingencies attached to these grants

Disclosures - Venkys


Disclosures –Asian paints


* The Company's manufacturing facility at Khandala, Maharashtra has been granted "Mega Project Status" byGovernment of Maharashtra (GoM) and hence is eligible for Industrial Promotion Subsidy (IPS) under PackageScheme of Incentive, 2007 in the form of refund of VAT paid to Maharashtra Government, exemption on electricityduty and stamp duty within a period of 9 years from the date of commencement of commercial production,restricted to a maximum of 100% of fixed capital investment as per the Eligibility Certificate issued by Director ofIndustries, Government of Maharashtra. Based on Memorandum of Understanding and clarifications from GoM, theCompany has continued to recognise the incentive computed based on SGST paid to GoM. Further, in terms of theInd AS 20 - "Accounting for Government Grants and Disclosure of Government Assistance", eligible incentive asmentioned above amounting to Rs 133.41 crores (Previous year Rs 162.36 crores) for year ended 31st March, 2019 iscredited to Statement of Profit and Loss and included under the head "Other operating income" on accrual basis.

Disclosures - BPCL


Disclosures - ONGC


• 7.3 In respect of subsidiary MRPL

– 7.3.7 The Company is eligible for certain economic benefits such as

exemptions from entry tax, custom duty, etc. on import/local

purchase of capital goods in earlier years. The Company has

accounted benefits received for custom duty and entry tax on

purchase of property, plant and equipment as government grants. In

the current year, the Company has adjusted the cost of property,

plant and equipment as at April 1, 2017 and credited deferred

government grant amounting to ₹ 3,618.21 million. The deferred

government grant is amortised over the remaining useful life of the

property, plant and equipment.

– Deferred Govt grants Rs 10450 m on 31st Mar 2019

Ind AS 20 & CAS

• CAS 24 Treatment of revenue in cost statement specifies the follows:

– Product or service related subsidies, grants, or incentives, received or receivable on sale of goods or rendering of services shall be part of revenue from operations and shall be identified with each product sold or service rendered (para 5.10) – also para 33 of appendix 1 of GACAP

– Any subsidy, grant, incentive or any such payment received or receivable to support the current operations of the entity other than those in the nature of capital grant and other than items referred in the paragraph 5.10 above shall be treated as reduction in the related cost (para 5.11) – also para 2 chapter 7 of the GACAP


Webinar Series on Ind AS - Institute of Cost Accountants ...

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