Accounting Standard 12: Accounting for Government Grants

Accounting Standard 12: Accounting for Government Grants

· Grants can be in cash or in kind and may carry certain conditions to be complied.

· Grants should not be recognised unless reasonably assured to be realized and the enterprise complies with the conditions attached to the grant.

· Grants towards specific assets should be deducted from its gross value. Alternatively, it can be treated as deferred income in P & L A/c on rational basis over the useful life of the depreciable asset. Grants related to non-depreciable asset should be generally credited to Capital Reserves unless it stipulates fulfilment of certain obligations. In the latter case the grant should be credited to the P & L A/c over a reasonable period. The deferred income balance to be shown separately in the financial statements.

· Grants of revenue nature to be recognised in the P & L A/c over the period to match with the related cost, which are intended to be compensated. Such grants can be treated as other income or can be reduced from related expense.

· Grants by way of promoter’s contribution is to be credited to Capital Reserves and considered as part of shareholder’s funds.

· Grants in the form of non-monetary assets, given at concessional rate, shall be accounted at their acquisition cost. Asset given free of cost be recorded at nominal value.

· Grants receivable as compensation for losses/expenses incurred should be recognised and disclosed in P & L A/c in the year it is receivable and shown as extraordinary item, if material in amount.

· Grants when become refundable, be shown as extraordinary item.

· Revenue grants when refundable should be first adjusted against unamortised deferred credit balance of the grant and the balance should be charged to the P & L A/c.

· Grants against specific assets on becoming refundable are recorded by increasing the value of the respective asset or by reducing Capital Reserve / Deferred income balance of the grant, as applicable. Any such increase in the value of the asset shall be depreciated prospectively over the residual useful life of the asset.

Accounting policy adopted for grants including method of presentation, extent of recognition in financial statements, accounting of non-monetary assets given at concession/ free of cost be disclosed.