as_12_accounting for government grants ppt

8/6/2019 AS_12_Accounting for Government Grants Ppt

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(AS 12)(AS 12)Accounting forAccounting for

Government GrantsGovernment Grants


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ScopeScopeThisThis StatementStatement doesdoes notnot dealdeal withwith::

(i)(i) thethe specialspecial problemsproblems arisingarising inin accountingaccounting forforgovernmentgovernment grantsgrants inin financialfinancial statementsstatements

reflectingreflecting thethe effectseffects ofof changingchanging pricesprices oror ininsupplementarysupplementary informationinformation ofof aa similarsimilar naturenature;;

(ii)(ii) governmentgovernment assistanceassistance otherother thanthan inin thethe

formform ofof governmentgovernment grantsgrants;;

(iii)(iii) governmentgovernment participationparticipation inin thethe ownershipownershipofof thethe enterpriseenterprise..


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DefinitionsDefinitions

TheThe followingfollowing termsterms areare usedused inin thisthis StatementStatement withwith thethemeaningsmeanings specifiedspecified::

(i)(i) GovernmentGovernment refersrefers toto government,government, governmentgovernment

agenciesagencies andand similarsimilar bodiesbodies whetherwhether local,local, nationalnational ororinternationalinternational..

(ii)(ii) GovernmentGovernment grantsgrants areare assistanceassistance byby governmentgovernment inincashcash oror kindkind toto anan enterpriseenterprise forfor pastpast oror futurefuture

compliancecompliance withwith certaincertain conditionsconditions.. TheyThey excludeexclude thosethoseformsforms ofof governmentgovernment assistanceassistance whichwhich cannotcannotreasonablyreasonably havehave aa valuevalue placedplaced uponupon themthem andandtransactionstransactions withwith governmentgovernment whichwhich cannotcannot bebedistinguisheddistinguished fromfrom thethe normalnormal tradingtrading transactionstransactions ofof thetheenterpriseenterprise..


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Accounting Treatment of GovernmentAccounting Treatment of Government

GrantsGrants Capital ApproachCapital Approach

(i)(i) ManyMany governmentgovernment grantsgrants areare inin thethe naturenature ofof promoters'promoters'contribution,contribution, ii..ee..,, theythey areare givengiven with with referencereference toto thethe totaltotal

investmentinvestment inin anan undertakingundertaking oror byby wayway ofof contributioncontribution towardstowardsitsits totaltotal capitalcapital outlayoutlay andand nono repaymentrepayment isis ordinarilyordinarily expectedexpected ininthethe casecase ofof suchsuch grantsgrants.. TheseThese should,should, therefore,therefore, bebe creditedcrediteddirectlydirectly toto shareholders'shareholders' fundsfunds..

(ii)(ii) ItIt isis inappropriateinappropriate toto recogniserecognise governmentgovernment grantsgrants inin thetheprofitprofit andand lossloss statement,statement, sincesince theythey areare notnot earnedearned butbut representrepresentanan incentiveincentive providedprovided byby governmentgovernment withoutwithout relatedrelated costscosts..


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Income ApproachIncome Approach

(i)(i) GovernmentGovernment grantsgrants areare rarelyrarely gratuitousgratuitous.. TheThe enterpriseenterprise earnsearns themthem throughthroughcompliancecompliance withwith theirtheir conditionsconditions andand meetingmeeting thethe envisagedenvisaged obligationsobligations.. TheyTheyshouldshould thereforetherefore bebe takentaken toto incomeincome andand matchedmatched withwith thethe associatedassociated costscostswhichwhich thethe grantgrant isis intendedintended toto compensatecompensate..

(ii)(ii) AsAs incomeincome taxtax andand otherother taxestaxes areare chargescharges againstagainst income,income, itit isis logicallogical totodealdeal alsoalso withwith governmentgovernment grants,grants, whichwhich areare anan extensionextension ofof fiscalfiscal policies,policies, ininthethe profitprofit andand lossloss statementstatement

(iii)(iii) InIn casecase grantsgrants areare creditedcredited toto shareholders'shareholders' funds,funds, nono correlationcorrelation isis donedone

betweenbetween thethe accountingaccounting treatmenttreatment ofof thethe grantgrant andand thethe accountingaccounting treatmenttreatmentofof thethe expenditureexpenditure toto whichwhich thethe grantgrant relatesrelates..


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GovernmentGovernment grantsgrants availableavailable toto thethe enterpriseenterprise areare consideredconsidered forforinclusioninclusion inin accountsaccounts::

(i)(i) wherewhere therethere isis reasonablereasonable assuranceassurance thatthat thethe enterpriseenterprise willwill

complycomply withwith thethe conditionsconditions attachedattached toto themthem;; andand

(ii)(ii) wherewhere suchsuch benefitsbenefits havehave beenbeen earnedearned byby thethe enterpriseenterprise andand ititisis reasonablyreasonably certaincertain thatthat thethe ultimateultimate collectioncollection willwill bebe mademade..

MereMere receiptreceipt ofof aa grantgrant isis notnot necessarilynecessarily aa conclusiveconclusive evidenceevidencethatthat conditionsconditions attachingattaching toto thethe grantgrant havehave beenbeen oror will will bebefulfilledfulfilled..

AA contingencycontingency relatedrelated toto aa governmentgovernment grant,grant, arisingarising afterafter thethegrantgrant hashas beenbeen recognised,recognised, isis treatedtreated inin accordanceaccordance withwith

Accounting Accounting StandardStandard (AS)(AS) 44,, ContingenciesContingencies andand EventsEventsOccurringOccurring AfterAfter thethe BalanceBalance SheetSheet DateDate..

Recognition of GovernmentRecognition of Government

GrantsGrants


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GovernmentGovernment grantsgrants maymay taketake thethe formform ofof nonnon--

monetarymonetary assets,assets, suchsuch asas landland oror otherother

resources,resources, givengiven atat concessionalconcessional ratesrates.. InIn thesethese

circumstances,circumstances, itit isis usualusual toto accountaccount forfor suchsuch

assetsassets atat theirtheir acquisitionacquisition costcost.. NonNon--monetarymonetary

assetsassets givengiven freefree ofof costcost areare recordedrecorded atat aa

nominalnominal valuevalue..

NonNon--monetary Governmentmonetary Government

GrantsGrants


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Grants related to specific fixed assets aregovernment grants whose primarycondition is that an enterprise qualifyingfor them should purchase, construct orotherwise acquire such assets. Otherconditions may also be attached restricting

the type or location of the assets or theperiods during which they are to beacquired or held.

Presentation of Grants RelatedPresentation of Grants Related

to Specific Fixed Assetsto Specific Fixed Assets


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First MethodFirst Method

UnderUnder oneone method,method, thethe grantgrant isis shownshown asas aadeductiondeduction fromfrom thethe grossgross valuevalue ofof thethe assetassetconcernedconcerned inin arrivingarriving atat itsits bookbook valuevalue.. TheThe

grantgrant isis thusthus recognisedrecognised inin thethe profitprofit andand losslossstatementstatement overover thethe usefuluseful lifelife ofof aa depreciabledepreciableassetasset byby wayway ofof aa reducedreduced depreciationdepreciation chargecharge..WhereWhere thethe grantgrant equalsequals thethe whole,whole, oror virtuallyvirtually

thethe whole,whole, ofof thethe costcost ofof thethe asset,asset, thethe assetasset isisshownshown inin thethe balancebalance sheetsheet atat aa nominalnominal valuevalue..


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UnderUnder thethe otherother method,method, grantsgrants relatedrelated toto depreciabledepreciable assetsassets arearetreatedtreated asas deferreddeferred incomeincome whichwhich isis recognisedrecognised inin thethe profitprofit andand losslossstatementstatement onon aa systematicsystematic andand rationalrational basisbasis overover thethe usefuluseful lifelife ofof thetheassetasset.. SuchSuch allocationallocation toto incomeincome isis usuallyusually mademade overover thethe periodsperiods andandinin thethe proportionsproportions inin whichwhich depreciationdepreciation onon relatedrelated assetsassets isis chargedcharged..

GrantsGrants relatedrelated toto nonnon--depreciabledepreciable assetsassets areare creditedcredited toto capitalcapital reservereserveunderunder thisthis method,method, asas therethere isis usuallyusually nono chargecharge toto incomeincome inin respectrespect ofofsuchsuch assetsassets.. However,However, ifif aa grantgrant relatedrelated toto aa nonnon--depreciabledepreciable assetassetrequiresrequires thethe fulfillmentfulfillment ofof certaincertain obligations,obligations, thethe grantgrant isis creditedcredited totoincomeincome overover thethe samesame periodperiod overover whichwhich thethe costcost ofof meetingmeeting suchsuchobligationsobligations isis chargedcharged toto incomeincome.. TheThe deferreddeferred incomeincome isis suitablysuitablydiscloseddisclosed inin thethe balancebalance sheetsheet pendingpending itsits apportionmentapportionment toto profitprofit andand

lossloss accountaccount.. ForFor example,example, inin thethe casecase ofof aa company,company, itit isis shownshown afterafter'Reserves'Reserves andand Surplus'Surplus' butbut beforebefore 'Secured'Secured Loans'Loans' withwith aa suitablesuitabledescription,description, ee..gg..,, 'Deferred'Deferred governmentgovernment grants'grants'..

Second MethodSecond Method


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TheThe purchasepurchase ofof assetsassets andand thethe receiptreceipt ofof

relatedrelated grantsgrants cancan causecause majormajor movementsmovements inin

thethe cashcash flowflow ofof anan enterpriseenterprise.. ForFor thisthis reasonreason

andand inin orderorder toto showshow thethe grossgross investmentinvestment ininassets,assets, suchsuch movementsmovements areare oftenoften discloseddisclosed asas

separateseparate itemsitems inin thethe statementstatement ofof changeschanges inin

financialfinancial positionposition regardlessregardless ofof whetherwhether oror notnot

thethe grantgrant isis deducteddeducted fromfrom thethe relatedrelated assetasset forforthethe purposepurpose ofof balancebalance sheetsheet presentationpresentation..


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Presentation of Grants Related toPresentation of Grants Related to

RevenueRevenue

Government grants related to revenueshould be recognised on a systematic basis

in the profit and loss statement over theperiods necessary to match them with therelated costs which they are intended tocompensate. Such grants should either be

shown separately under 'other income' ordeducted in reporting the related expense.


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Presentation of Grants of thePresentation of Grants of the

nature of Promoters' contributionnature of Promoters' contribution

GovernmentGovernment grantsgrants ofof thethe naturenature ofof

promoters'promoters' contributioncontribution shouldshould bebecreditedcredited toto capitalcapital reservereserve andand treatedtreated asas aapartpart ofof shareholders'shareholders' fundsfunds whichwhich cancanneitherneither distributeddistributed nornor consideredconsidered asas

deferreddeferred incomeincome..


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GovernmentGovernment grantsgrants sometimessometimes becomebecome refundablerefundablebecausebecause certaincertain conditionsconditions areare notnot fulfilledfulfilled.. AAgovernmentgovernment grantgrant thatthat becomesbecomes refundablerefundable isis treatedtreated asas

anan extraordinaryextraordinary itemitem (Accounting(Accounting StandardStandard (AS)(AS) 55,,PriorPrior PeriodPeriod andand ExtraordinaryExtraordinary ItemsItems andand ChangesChanges ininAccountingAccounting Policies)Policies)..

TheThe amountamount refundablerefundable inin respectrespect ofof aa governmentgovernment grantgrant

relatedrelated toto revenuerevenue isis appliedapplied firstfirst againstagainst anyanyunamortisedunamortised deferreddeferred creditcredit remainingremaining inin respectrespect ofof thethegrantgrant.. ToTo thethe extentextent thatthat thethe amountamount refundablerefundable exceedsexceedsanyany suchsuch deferreddeferred credit,credit, oror wherewhere nono deferreddeferred creditcreditexists,exists, thethe amountamount isis chargedcharged immediatelyimmediately toto profitprofit andandlossloss statementstatement..

Refund of Government GrantsRefund of Government Grants


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The amount refundable in respect of a government grant

related to a specific fixed asset is recorded by increasing thebook value of the asset or by reducing the capital reserve orthe deferred income balance, as appropriate, by the amountrefundable. In the first alternative, i.e., where the book value ofthe asset is increased, depreciation on the revised book value is

provided prospectively over the residual useful life of theasset.

Where a grant which is in the nature of promoters' contributionbecomes refundable, in part or in full, to the government on

non-fulfillment of some specified conditions, the relevantamount recoverable by the government is reduced from thecapital reserve.


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Disclosure in Financial StatementsDisclosure in Financial Statements

The following disclosures are appropriate:

(i) the accounting policy adopted for government

grants, including the methods of presentation in thefinancial statements;

(ii) the nature and extent of government grants

recognised in the financial statements, includinggrants of non-monetary assets given at a concessionalrate or free of cost.


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Thank You

as_12_accounting for government grants ppt

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