Page 3 - 14. COMPILER QB - INDAS 20

Solution

Accounting treatment for:
1. First Grant
The first grant for ‘Clear River Project’ involving research into effects of various chemical waste from the
industrial area in Madhya Pradesh seems to be unconditional as no details regarding its refund has been

mentioned. Even though the research has not been started nor any major steps have been completed by
Rainbow Limited to commence the research, yet the grant will be recognized immediately in profit or loss for
the year ended 31st March, 20X2.
Alternatively, in case, the grant is conditional as to expenditure on research, the grant will be recognized in
the books of Rainbow Limited over the year the expenditure is being incurred.

2. Second Grant
The second grant related to commercial development of new equipment is a grant related to depreciable
assets. As per the information given in the question, the equipment will be available for sale in the market
from April, 20X3. Hence, by that time, grant relates to the construction of an asset and should be initially
recognized as deferred income.

The deferred income should be recognized as income on a systematic and rational basis over the asset’s useful
life.
The entity should recognise a liability on the balance sheet for the years ending 31st March, 20X2 and 31st
March, 20X3. Once the equipment starts being used in the manufacturing process, the deferred grant income

of Rs 100,000 should be recognised over the asset’s useful life to compensate for depreciation costs.
Alternatively, as per Ind AS 20, Rainbow Limited would also be permitted to offset the deferred income of Rs
100,000 against the cost of the equipment as on 1st April, 20X3.

3. For flood related compensation
Rainbow Limited will be able to submit an application form only after 31st May, 20X2 i.e. in the year 20X2-

20X3. Although flood happened in September, 20X1 and loss was incurred due to flood related to the year
20X1-20X2, the entity should recognise the income from the government grant in the year when the
application form related to it is submitted & approved by the government for compensation.
Since, in the year 20X1-20X2, the application form could not be submitted due to adoption of financials with
respect to sales figure before flood occurred, Rainbow Limited should not recognise the grant income as it has

not become receivable as on 31st March, 20X2.

Q2 (Nov 20)

Entity A is awarded a government grant of Rs.60,000 receivable over three years (Rs.40,000 in year 1 and
Rs.10,000 in each of years 2 and 3), contingent on creating 10 new jobs and maintaining them for three
years. The employees are recruited at a total cost of Rs.30,000, and the wage bill for the first year is

Rs.1,00,000, rising by Rs.10,000 in each of the subsequent years. Calculate the grant income and deferred
income to be accounted for in the books for year 1, 2 and 3.
Solution

The income of Rs. 60,000 should be recognised over the three year period to compensate for the related costs.

14. 2