Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance

Indian equivalent: Ind AS 20 - Accounting for Government Grants and Disclosure of Government Assistance

Objective and scope

IAS 20 explains how to account for money or help received from the government - cash grants, subsidies, tax holidays, cheap loans - matching the benefit to the costs it is meant to compensate rather than dumping it into income all at once.

Core principle

A government grant is not a windfall to grab into profit immediately. IAS 20's core idea is matching: recognise the grant in profit over the same periods as the costs it subsidises. A grant for an asset is spread over the asset's life; a grant for expenses is recognised as those expenses hit.

Defined terms and technical terminology

Term	Technical meaning
Government grant	Assistance in the form of transfers of resources in return for past or future compliance with conditions.
Grant related to assets	A grant whose primary condition is that the entity buy or build a long-term asset.
Grant related to income	A grant to compensate for expenses or losses already incurred or to give immediate financial support.
Government assistance	Broader help (advice, guarantees, procurement preference) that can't be reliably valued - disclosed, not recognised.

Application and worked illustrations

Recognition principle

A grant is recognised only when there is reasonable assurance that (a) the entity will comply with the conditions and (b) the grant will be received. It is then recognised in profit on a systematic basis over the periods in which the entity recognises the related costs - never simply credited to equity, and never taken to income all at once if it relates to future costs.

Worked example 1 - grant related to an asset

A company receives a ₹20,00,000 government grant to buy a ₹1,00,00,000 machine with a 10-year life. Two presentation methods are allowed. (1) Deferred income method: record the grant as deferred income and release ₹2,00,000/year to profit over 10 years, matching the depreciation. (2) Netting method: deduct the grant from the asset's cost, carrying the machine at ₹80,00,000 and depreciating that - which automatically reduces the annual depreciation. Either way, the ₹20 lakh benefit is spread across 10 years, not booked immediately.

Journal entry - Deferred income method - release each year
Account	Debit (₹)	Credit (₹)
Deferred income (grant)	2,00,000
Grant income (P&L)		2,00,000

Worked example 2 - grant related to income

A company receives ₹5,00,000 to subsidise employee training expenses incurred this year. Because the related cost is already in this year's profit, the grant is recognised as income this year (either as 'other income' or netted against the training expense).

Repayment of a grant

If conditions are breached and the grant becomes repayable, it is treated as a change in estimate: repay it and adjust the deferred income or asset carrying amount accordingly.

Common mistake: crediting a grant straight to equity or to income on receipt. Recognition must follow the matching principle over the relevant periods.

IND AS LINK

Ind AS 20 is broadly aligned but carries a notable carve-out: a grant related to an asset cannot be presented by deducting it from the asset's cost - the deferred income approach is required. Also, non-monetary grants are recognised at fair value (Ind AS does not allow the nominal-value option in the same way).

Further worked illustrations

Extra numeric example - a wage-subsidy grant

During a downturn a government pays a company ₹3,00,000 to retain staff for 6 months. The related wage cost falls entirely in the current year, so the whole ₹3,00,000 is recognised as income this year (either as 'other income' or netted against wages) - matching the grant to the period of the subsidised cost.

INDIAN REGULATORY CONTEXT

Indian state governments often give capital subsidies to attract factories to a region (a percentage of the plant cost). Under Ind AS 20 these asset-related grants must be shown as deferred income released over the asset's life - India does not permit deducting the subsidy from the asset's cost, unlike full IFRS. So an Indian company carries the full asset cost and a separate deferred-income liability.

TECHNICAL EDGE CASE

A company receives a ₹1 crore government loan at 2% when the market rate is 10%. The benefit is the interest saved. Under IAS 20/IFRS 9, the loan is recorded at its fair value (discounted at 10%), and the difference between the ₹1 crore received and that fair value is a government grant - recognised over the periods the loan benefits the entity. The cheap interest isn't 'free'; it's a measurable grant.