Page 4 - 14. COMPILER QB - INDAS 20

Calculation of Grant Income and Deferred Income:
Year Labour Grant Deferred
Cost Income Income
Rs. Rs. Rs.
1 1,30,000 21,667 60,000 x (130/360) 18,333 (40,000 – 21,667)
2 1,10,000 18,333 60,000 x (110/360) 10,000 (50,000 – 21,667 –18,333)

3 1,20,000 20,000 60,000 x (120/360) - (60,000 – 21,667 – 18,333 –
20,000)
3,60,000 60,000
So Grant income to be recognised in Profit & Loss for years 1, 2 and 3 are Rs. 21,667, Rs. 18,333 and Rs.
20,000 respectively.
Amount of grant that has not yet been credited to profit & loss i.e; deferred income is to be reflected in the

balance sheet. Hence, deferred income balance as at year end 1, 2 and 3 are Rs. 18,333, Rs. 10,000 and Nil
respectively.

Q3 (Nov 21)

A Ltd. has been conducting its business activities in backward areas of the country and due to higher
operating costs in such regions, it has collectively incurred huge losses in previous years. As per a scheme of
government announced in March 20X1, the company will be partially compensated for the losses incurred by it

to the extent of Rs. 10,00,00,000, which will be received in October 20X1. The compensation being paid by the
government meets the definition of government grant as per Ind AS 20. Assume that no other conditions are
to be fulfilled by the company to receive the compensation.
When should the grant be recognised in a statement of profit and loss? Discuss in light of relevant Ind AS.

Solution
Ind AS 20 states that, Government grants, including non-monetary grants at fair value, shall not be recognised
until there is reasonable assurance that:

1. the entity will comply with the conditions attaching to them; and
2. the grants will be received.
Further, Ind AS 20 states as follows:
“A government grant that becomes receivable as compensation for expenses or losses already incurred or for
the purpose of giving immediate financial support to the entity with no future related costs shall be recognised

in profit or loss of the period in which it becomes receivable”.
“A government grant may become receivable by an entity as compensation for expenses or losses incurred in a
previous period. Such a grant is recognised in profit or loss of the period in which it becomes receivable, with
disclosure to ensure that its effect is clearly understood.”
In accordance with the above, in the given case, as at March 20X1, A Ltd. is entitled to receive a government
grant in the form of compensation for losses already incurred by it in the previous years. Therefore, even

though the compensation will be received in the month of October 20X1, A Ltd. should recognise the
compensation receivable by it as a government grant in the profit or loss for the period in which it became
receivable, i.e., for the financial year 20X0-20X1 with disclosure to ensure that its effect is clearly understood.

14. 3