government grants accounting

8/11/2019 Government Grants Accounting

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ACCOUNTING FOR GRANTSAND

EMPLOYEE RELATED

TRANSACTIONSCommittee on Government Accounting Department of Posts,Institute of Chartered Accountants of India,, Ministry of Communications and InformationTechnology, Email: [email protected] Website: www.indiapost.gov.in Website: www.icai.org

SESSION - 12
mailto:[email protected]://www.indiapost.gov.in/http://www.icai.org/http://www.icai.org/http://www.indiapost.gov.in/mailto:[email protected]


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INTRODUCTION

Accounting for grant contains the recommended accountingsystem for transactions relating to Grants received byDepartment of Post (DOP) from Ministry of Finance.

Grants may be defined as the assistance by government incash or kind for past or future compliance with certaincondition(s).

The grants received from government are further categorizedas Plan and Non Plan grants.

Committee on Government Accounting Department of Posts,Institute of Chartered Accountants of India,, Ministry of Communications and InformationTechnology, Email: [email protected] Website: www.indiapost.gov.in Website: www.icai.org


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CLASSIFICATION OF GRANT Based upon Nature of Grant.

a) Capital Grant:Capital Grant is usually utilized for capital expenditure i.e. creationof a fixed asset (like purchase of land, building etc.). The benefits ofsuch expenditure are of an enduring nature and spread over anextended period of time.

b) Revenue Grant:Revenue Grant is generally utilized for meeting recurring

expenditure, the benefits of which usually expire within theaccounting year in which it is incurred. Revenue Grants are usuallyin the nature of a subsidy



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Based upon Usage of Grant.

a) General Grant:Grants received for general (unspecified) purposes are usually inthe form of a lump sum payment from the State or Central

Government to facilitate meeting certain expenditure (usuallyrevenue in nature).

b) Specific Grants:Specific Grants is given for carrying out specific projects/ schemesor for meeting specific expenditures. These can be Revenue orCapital in nature based on the purpose for which these are received.Specific grants may either be received in advance or as areimbursement of the expenditure incurred by DOP.



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RECOGNITION OF GOVERNMENT

GRANT As per AS- 12, Accounting for Grant, issued by Institute of Chartered Accountants of India, Government Grant available to the enterpriseare considered for inclusion in accounts:

a) Where there is reasonable assurance that the enterprise willcomply with the conditions attached to them;

b) Where such benefits have been earned by the enterprise and it isreasonably certain that the ultimate collection will be made.

Mere receipt of a grant is not necessarily a conclusive evidencethat conditions attaching to the grant have been or will be fulfilled.



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ACCOUNTING PRINCIPLES The following Accounting Principles shall govern the recording,accounting and treatment of transactions relating to Grants:

General Grants shall be recognized as income on actual receipt. As per IGAS 2 Accounting and Classification of Grants-in-aid

issued by GASAB , the Grants-in-Aid received are classified andaccounted for as Revenue receipts irrespective of the purpose forwhich the grants are received.

If Grants are received in kind, the market value on the date ofreceipt should be accounted for. If not available the currentreplacement cost should be accounted for as Revenue receipt



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ACCOUNTING RECORDS AND

PROCEDURES The accounting unit shall maintain a Grant Register with

separate registers for capital and revenue grants andseparate pages for each grant for recording details of receipt

of grant and expenditures incurred from it.

Specific Grants Received in Advance:

Bank A/c Dr. xxxTo Grant for specific purpose A/c xxx



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Grant Received as Nodal/Implementation Agency:

DOP may receive grants as a nodal agency under certainschemes, such grants may be disbursed to the intendedbeneficiary group only after receiving the same from the Govt.

In this cases the beneficiaries will be required to submitutilization certificates which shall be passed to the concernedGovt. for reimbursement / adjustment of the amount of grant.

Bank A/c Dr. xxxTo Grant for specific Purpose xxx



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Payment of Advance to Executing Agency or BeneficiaryGroup:

DOPs may pay advance to the executing agency / beneficiarygroup towards the works to be undertaken by them. Forrecording the payment of advances, the accounting unit willpass the following accounting entry:

Advances for Project Specific Grant A/c Dr. xxx

To Bank A/c xxx



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Recording of Liability for Scheme expenses or Beneficiary Group:

1) DOP may receive the bills for payment either directly fromthe contractors or from the implementing agency.. For recording ofthe amounts payable to the contractors or nodal agencies thefollowing entry shall be passed:

Other Current Asset-Scheme expenses A/c Dr. xxxTo Creditors payable against scheme expenses A/c xxxTo Recoveries payable TDS from scheme A/c xxxTo Advances for project specific grants A/c xxx

2) The payment for the bills shall be made only from therespective designated grant bank account the accounting unit shallpass the following entry on payment :

Creditors payable against scheme expenses A/c Dr. xxxTo Bank A/c xxx


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Recording of Transfer of Scheme Expenses on Completionof the scheme or at Period End:

Grant for Specific Purposes A/c Dr. xxxTo other current assets scheme expenses A/c xxx

Repayment of unutilized Specific Grant received in advance:

Specific grants are normally to be used within a period specified inthe Grant Sanction order. Generally the Specific grants shall berefunded in the following circumstances: On expiry of the period for utilization of the grant as per grant

sanction order. The total amount utilized out of the grant is lesser than the

amount of the grant received.


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Recognition of Liability for repayment of Grant:

Grant for Specific Purpose A/c Dr. xxxTo Refund payable-Grants A/c xxx

Payment of unutilized Specific Grant:

Refund payable- Grants A/c Dr. xxxTo Designated Bank A/c xxx



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EMPLOYEE RELATED TRANSACTIONS Introduction:

Employee related transaction contains the recommendedaccounting system on matters pertaining to the employees ofthe Department of Post (DOP).

Employee Benefits can be categorized into four categories: Short term employee benefits such as wages, salaries etc. Post employment benefits such as pension, other retirement benefits

etc.

Termination benefits. Other long term benefits such as long service leave or sabbatical leave

etc.



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Employees Benefits Standards Applicable:

ICAI AS 15 Employee Benefits IPSAS 25 Employee Benefits

The objective of this Standard is to prescribe the accountingand disclosure for employee benefits. Employee benefits are of four types

Short term employee benefits such as wages, salaries etc. Post employment benefits such as pension, other retirement benefits etc. Termination benefits. Other long term benefits such as long service leave or sabbatical leave



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Short-Term Employee Benefits Short-term employee benefits include items such as:

Wages, salaries, and social security contributions; Short-term compensated absences (such as paid annual

leave and paid sick leave) where the compensation for the

absences is due to be settled within twelve months afterthe end of the period in which the employees render therelated employee service;

Performance related bonuses and profit-sharing payablewithin twelve months after the end of the period in whichthe employees render the related service

Non-monetary benefits (such as medical care, housing,cars, and free or subsidized goods or services) for currentemployees



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Short-Term Employee Benefits The Standard requires an enterprise to recognizeshort term benefits: a liability when an employee has provided service in

exchange for employee benefits to be paid in thefuture; and an expense when the enterprise consumes the

economic benefit arising from service provided by anemployee in exchange for employee benefits



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LONG TERM/POST

EMPLOYMENT BENEFITS Post-employment benefits include, forexample:

(a) Retirement benefits, such as pensions;and(b) Other post-employment benefits, such

as post-employment life insurance, andpost-employment medical care.



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Post- employment BenefitsDefined

Contribution Plans When an employee has rendered service to anentity during a period, the entity shall recognizethe contribution payable to a defined contributionplan in exchange for that service: As a liability (accrued expense), after deducting any

contribution already paid. If the contribution alreadypaid exceeds the contribution due for service beforethe reporting date, an entity shall recognize thatexcess as an asset (prepaid expense) to the extentthat the prepayment will lead to, for example, areduction in future payments or a cash refund; and

As an expense, unless another Standard requires orpermits the inclusion of the contribution in the cost ofan asset


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Post- employment BenefitsDefined

Benefit Plans The amount recognized as a defined benefitliability shall be the net total of the followingamounts in the Balance Sheet The present value of the defined benefit

obligation at the reporting date Plus any actuarial gains (less any actuarial

losses) not recognized because of the treatment Minus any past service cost not yet recognized Minus the fair value at the reporting date of plan

assets (if any) out of which the obligations are tobe settled directly


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Post-employmentBenefitsDefined Benefit Plans

An entity shall recognize the net total of

the following amounts in Profit or Loss: Current service cost Interest cost



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Accounting Principles:

The following Accounting Principles shall govern therecording, accounting and treatment of employee relatedtransactions: Expenses on Salaries and other allowances shall be recognised

as and when they are due for payment on drawing of Pay Bill(i.e. at the month end). Presently, DOP is following March toFebruary for recognizing salaries for the financial year.

Statutory deductions from salaries including those for incometax, profession tax etc., shall be recognised as liability in the

same period in which the corresponding salary is recognised asexpense. Actuarial valuation for recognition of future liabilities towards

employees retirement benefits may be considered by DOP. Committee on Government Accounting Department of Posts,Institute of Chartered Accountants of India,, Ministry of Communications and InformationTechnology, Email: [email protected] Website: www.indiapost.gov.in Website: www.icai.org


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Accounting Record and Procedure Recording of Salary , Allowances and Corresponding Liability:

For recognizing the expense under various heads and theliability to the employees in respect of gross salaries, the AccountingUnit shall pass the following entry:

Establishment Expenses A/c Dr. xxx

To Salaries Payable A/c xxx

Recording of statutory and other deduction and recoveries formsalaries:

For accounting liabilities towards amounts payable to differentauthorities in respect of statutory deductions, and, dues towardssettlement of obligations on behalf of employees recovery ofinstalments of loans or interest levied on loan and/or advances fromemployees, etc., the Accounting Unit shall pass the following entry:


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Gross Salary Payable A/c Dr. xxxTo Provident Fund A/c xxx

To Loan to employees A/c xxxTo Advance to employee A/c xxx

Recording of payment of Salaries in cash:

a) On withdrawal of cashCash A/c Dr. xxx

To Bank A/c xxx

b) For Payment of salary by cash :Net Salary Payable A/c Dr. xxx

To Cash A/c xxxCommittee on Government Accounting Department of Posts,Institute of Chartered Accountants of India,, Ministry of Communications and InformationTechnology, Email: [email protected] Website: www.indiapost.gov.in Website: www.icai.org


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Recording of payment of other deductions made fromsalaries:

For discharging liabilities towards voluntary deductions (e.g.,group insurance premium, investment made by employees, etc.)

made on behalf of employeesRecoveries payable others A/c Dr.

xxxTo Cash A/c

xxx

To Bank A/cxxx


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ii) Bank A/c Dr. xxx

To Cash A/c xxx

iii) Employees liabilities- Net salaries Payable A/c Dr. xxxTo Employees Liabilities- unpaid salaries A/c xxx

Recording of payment of unpaid salaries:

Employees liabilities- Net salaries Payable A/c Dr. xxxTo Cash A/c xxxTo Bank A/c xxx



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LOANS AND ADVANCES GIVEN DoP may grant:

- Interest bearing personal loans/advances (e.g. HBA, CPA)- Interest free loans and advances (e.g. festival advance)

Accounting Entries:

a) For advances given to employees: Advance to employees A/c Dr. xxx

To Bank A/c xxx

b) For Loans granted to employees:Loans to employees A/c Dr. xxx

To Bank A/c xxx

Committee on Government Accounting Department of Posts,Institute of Chartered Accountants of India,, Ministry of Communications and Information

Technology, Email: [email protected] Website: www.indiapost.gov.in Website: www.icai.org


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Recognizing Interest on loans and advances at the period end:

Interest due on employee loans A/c Dr. xxxTo Interest on loans and advances to employees A/c xxx

PROVIDENT FUND:

Employees Provident Fund shall be deducted from Salaries ofemployees and transfer the amount to Provident Fund Bank A/c

Designated Bank A/c Dr. xxxTo Bank A/c xxx



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Advance to Employees from Provident Fund:Employees Provident Fund Loan A/c Dr. xxx

To Bank A/c xxx

Recovery of Provident Fund Loan/Advances: A deduction shall be made for recovery of loan/ advances given from

the Provident Fund, from the salaries of the employees . Withdrawn from Provident Fund:

(at the time of retirement or otherwise)

i) For recognizing the provident fund contribution and interest due to anemployee.

Provident Fund A/c Dr. xxxTo Provident Fund Payable A/c xxx

Committee on Government Accounting Department of Posts,Institute of Chartered Accountants of India,, Ministry of Communications and InformationTechnology, Email: [email protected] Website: www.indiapost.gov.in

Website: www.icai.org


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ii) On Payment:Provident Fund Payable A/c Dr. xxx

To Designated Bank A/c xxx

RETIREMENT BENEFITSa) Pension

b) Gratuity

c) Leave Encashment

A. Pension:The pension would be payable at the time of their retirement

either on superannuation or otherwise in accordance with theprescribed rules. The DOP may pay pension directly or through aFund established for this purpose.




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ACCOUNTING FOR PENSION

a) On creation of liability for pensionPension Expenses A/c Dr. xxx

To Pension Payable A/c xxx

b) On payment of commuted pensionPension Payable A/c Dr. xxx

To Bank A/c xxx

c) For Creation of Pension FundPension Expenses A/c Dr. xxx

To Pension Fund A/c xxx




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GRATUITY AND LEAVE ENCASHMENT

a) On creation of liability for gratuity and leave encashment.

Leave Encashment A/c Dr. xxxGratuity Expenses A/c Dr. xxx

To Employees liabilities- Gratuity A/c xxxTo Employees liabilities- Leave Salary A/c xxx

b) On payment of liability for gratuity and leave salary payable

Employees liabilities- Gratuity A/c Dr. xxxEmployees liabilities- Leave Salary A/c Dr. xxx

To Bank A/c xxx




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c) On payment of Leave Encashment contribution in respect ofEmployees on deputation with DoP.

Leave Salary Contribution for employees on Deputation A/c Dr. xxxTo Bank A/c

xxx




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