ICAI issues an exposure draft of amendments to Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance
The Ministry of Corporate Affairs (MCA) notified the Indian Accounting Standards (Ind AS), applicable with effect from 1 April 2016 to Indian entities in a phased manner. The Ind AS are largely converged with International Financial Reporting Standards (IFRS), except for certain areas of differences (‘carve-outs’) prescribed by the MCA. These carve-outs may be in the nature of a deviation from the IFRS requirements or eliminate an accounting policy choice that exists under IFRS.
Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance specifies the manner of accounting and disclosure of government grants and other forms of government assistance received by entities.
On 5 January 2018, the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) issued an Exposure Draft (ED) proposing amendments to certain provisions of Ind AS 20.
Comments on the amendments may be submitted to the ASB on or before 24 January 2018.
This issue of IFRS Notes provides an overview of the amendments proposed to Ind AS 20.
Overview of the proposed amendments
Accounting for non-monetary government grants: A government grant could take the form of a transfer of a non-monetary asset (such as land or other resources) for the use of the entity. In such a case, an entity should firstly assess the fair value of the non-monetary asset and account for the grant and the related asset at that fair value as per paragraph 23 of Ind AS 20.
ED on Ind AS 20 proposes an alternate method for accounting for such non-monetary grants i.e. it permits an entity to record both the asset and the grant at a nominal amount rather than at fair value. This accounting policy option is in accordance with the guidance in IFRS (International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance).
Presentation of grants related to assets: Currently under Ind AS 20, government grants related to assets (including non-monetary grants at fair value) are required to be presented in the balance sheet by setting up the grant as deferred income which should be recognised in the statement of profit and loss on a systematic basis over the useful life of the asset.
In addition to the above manner of presentation of the government grants related to assets, ED on Ind AS 20 proposes another method of presentation of such grants. It permits the amount of grant to be deducted while calculating the carrying amount of the asset. Additionally, the grant would be recognised in the statement of profit and loss over the useful life of a depreciable asset as a reduced depreciation expense. This is an important amendment since would effectively reverse a carve-out in Ind AS 20 that eliminated this accounting policy choice and fully align the accounting treatment for government grants with IFRS.
Repayment of government grants: Currently under Ind AS 20, a government grant that becomes repayable is required to be accounted for as a change in accounting estimate as per Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors. Further, repayment of grant related to an asset should be recognised by reducing the deferred income balance by the amount repayable.
The ED on Ind AS 20 proposes that the repayment of grant related to an asset should be recognised by increasing the carrying amount of the related asset, if the grant was previously deducted from the carrying amount of the asset. Additionally, it clarifies that the cumulative additional depreciation which would have been recognised in the profit or loss to date in the absence of the grant should be recognised immediately in the profit or loss.
Further, the ED envisages that circumstances giving rise to repayment of a grant related to an asset may require consideration of a possible impairment in the new carrying amount of the asset.
Transitional provisions: ED on Ind AS 20 provides a transitional provision in case an entity avails the option of presentation of non-monetary government grants at a nominal value and of government grants related to assets by deducting the same from the carrying amount of the asset.
According to it, such an entity could either:
Effective date: The amendments to Ind AS 20 have been proposed to be made effective for annual periods beginning on or after 1 April 2018 subject to notification by the MCA.
The amendments proposed in the ED are in line with the requirements of IAS 20. Entities in India should consider these amendments as these are expected to provide them with an additional accounting policy choice for the recognition and measurement of asset related grants.
In its clarifications bulletin 5 (revised) dated 17 April 2017, the Ind AS Transition Facilitation Group (ITFG) of the ICAI had considered the accounting impact on first-time adoption for an entity that elected to continue with the previous GAAP carrying amount for its Property, Plant and Equipment (PPE) on transition to Ind AS. The ITFG considered the accounting treatment if the entity had deducted a related government grant from the carrying amount of the PPE under the previous GAAP.
When an entity elects to measure its PPE at deemed cost, being the previous GAAP carrying amount on transition, Ind AS 101 does not permit any further adjustments to be made to the deemed cost for transition adjustments that might arise from application of other Ind AS. Since Ind AS 20 requires such a grant to be set up as deferred income on the date of transition, the ITFG opined that an adjustment to the carrying amount of PPE would be permitted on transition in order to recognise the grant as deferred income. This would be considered as a consequential adjustment to reflect the correct economic reality and result in faithful representation of the effects of these transactions on transition to Ind AS.
However, the ED to Ind AS 20 provides entities with an option to deduct the grant from the carrying amount of a related asset (PPE). Therefore, entities transitioning to Ind AS, that elect to apply the deemed cost exemption and measure their PPE at the previous GAAP carrying amount should consider if an adjustment to the carrying amount of PPE to recognise the grant as deferred income would still be permitted on transition. The ITFG may consider providing further clarity on this aspect.
To access the text of the ED, please click here.
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