Page 6 - 8. COMPILER QB - INDAS 41

QUESTIONS FROM PAST EXAM PAPERS

Q4 (Nov.19 – 4 Marks)
st
Arun Ltd. is an entity engaged in plantation and farming on a large scale and diversified across India. On 1

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 tree 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.

Required:
Evaluate whether the above accounting treatment made by the management is in compliance with the

applicable Ind AS. If not, advise the correct treatment.
SOLUTION

Arun Ltd. is engaged in plantation and farming on a large scale. This implies that it has agriculture business.
Hence, Ind AS 41 will be applicable.
Further, the government grant has been given subject to a condition that it will continue to engage in

plantation of eucalyptus tree for a coming period of five years. This implies that it is a conditional grant.

In the absence of the measurement base of biological asset, it is assumed that “Arun Ltd measures its
Biological Asset at fair value less cost to sell”:

(i) As per Ind AS 41, the government grant should be recognised in profit or loss when, and only when, the
conditions attaching to the government grant are met i.e., continuous plantation of eucalyptus tree for

coming period of 5 years. In this case, the grant shall not be recognised in profit or loss until the five
years have passed. The entity has recognised the grant in profit and loss on proportionate basis, which

is incorrect.
(ii) However, if the terms of the grant allow part of it to be retained according to the time elapsed, the

entity recognises that part in profit or loss as time passes. Accordingly, the entity can recognise the
proportionate grant for Rs 4 lakh in the statement of Profit and Loss based on the terms of the grant.

Alternatively, it may be assumed that Arun Ltd. measures its Biological Asset at its cost less any
accumulated depreciation and any accumulated impairment losses (as per para 30 of Ind AS 41):

In such a situation, principles of Ind AS 20 (with respect to conditional grant will apply). According to Ind
AS 20, the conditional grant should be recognised in the Statement of Profit and Loss over the periods and

in the proportions in which depreciation expense on those assets is recognised. Hence the proportionate
recognition of grant Rs 4 lakh (20 lakh/5) as income is correct since the entity has reasonable assurance

that the entity will comply with the conditions attached to the grant.
Note: In case eucalyptus tree is considered as bearer plant by Arun Ltd., then Ind AS 20 will be applicable

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