Page 7 - 14. COMPILER QB - INDAS 20

QUESTIONS FROM PAST EXAM PAPERS

Q6 (May. 19 – 4 Marks)
Mediquick Ltd. has received the following grants from the Central Government for its newly started

pharmaceutical business:
● Rs. 50 lakh received for immediate start-up of business without any condition.
● Rs. 70 lakh received for research and development of drugs required for the treatment of cardiovascular
diseases with following conditions:
(i) That drugs should be available to the public at 20% cheaper from current market price and

(ii) The drugs should be in accordance with quality prescribed by the Govt. Drug Control department.
● Three acres of land (fair value: Rs. 20 lakh) received for set up of plant.
● Rs.4 lakh received for purchase of machinery of Rs.10 lakh. Useful life of machinery is 4years. Depreciation
on this machinery is to be charged on a straight-line basis.
How should Mediquick Ltd. recognize the government grants in its books of accounts as per relevant Ind AS?

Solution
Mediquick Ltd. should recognise the grants in the following manner:

● Rs. 50 lakhs have been received for immediate start-up of business. This should be recognised in the
Statement of Profit and Loss immediately as there are no conditions attached to the grant.
● Rs. 70 lakhs should be recognised in profit or loss on a systematic basis over the periods in which the
entity recognises as expense the related costs for which the grants are intended to compensate. However,
for this compliance, there should be reasonable assurance that Mediquick Ltd. complies with the conditions
attached to the grant.

● Land should be recognised at fair value of Rs. 20 lakhs and government grants should be presented in the
balance sheet by setting up the grant as deferred income.
Alternatively, since the land is granted at no cost, it may be presented in the books at nominal value.
● Rs. 4 lakhs should be recognised as deferred income and will be transferred to profit and loss account over
the useful life of the asset. In these cases, Rs.1,00,000 [Rs. 4 lakhs/ 4 years] should be credited to the

profit and loss account each year over the period of 4 years.
Alternatively, Rs. 4,00,000 will be deducted from the cost of the asset and depreciation will be charged at
reduced amount of Rs. 6,00,000 (Rs. 10,00,000 – Rs. 4,00,000) i.e. Rs. 1,50,000 each year.

Q7 (Nov. 19 – 4 Marks) (Mix of IndAS 20 & IndAS 41)

Arun Ltd. is an entity engaged in plantation and farming on a large scale and diversified across India. On 1 st
April, 2018, the company has received a government grant for Rs 20 lakh subject· to a condition that it will

continue to engage in plantation of eucalyptus trees for a coming period of five years.
The management has a reasonable assurance that the entity will comply with condition of engaging in the
plantation of eucalyptus trees for specified period of five years and accordingly it recognizes proportionate
grant for Rs 4 lakh in Statement of Profit and Loss as income following the principles laid down under Ind AS
20
Accounting for Government Grants and Disclosure of Government Assistance.

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