Accounting for Government Grant as Non-Monetary Intangible Asset Under Ind AS

This discussion delves into the accounting treatment of a broadcasting license granted by the government, focusing on its classification as an intangible asset and the recognition of related government assistance under Indian Accounting Standards (Ind AS).

1. Classification of Broadcasting License as an Intangible Asset

A broadcasting license granted by the government typically confers a non-monetary and identifiable right without physical substance, qualifying it as an intangible asset under Ind AS 38 – Intangible Assets. Such licenses meet the recognition criteria of:

• Identifiability
• Control over the asset
• Future economic benefits

According to Ind AS 38, intangible assets should be measured initially at cost, which includes the purchase price and any directly attributable expenditure necessary to bring the asset into its intended use.

2. Recognition of Government Grant When Asset Is Acquired Free of Cost

When a broadcasting license is acquired free of charge as a government grant, Ind AS 38 allows the asset to be:

• Recognised at fair value, or
• Recognised at a nominal amount, provided it is accompanied by the capitalisation of directly attributable costs (e.g., legal fees, application costs).

This ensures that even though the asset is granted without a direct monetary outlay, it is still presented meaningfully in the financial statements.

3. Application of Ind AS 20 to Government Assistance

The recognition of the associated government grant is governed by Ind AS 20 – Accounting for Government Grants and Disclosure of Government Assistance. This standard offers two acceptable approaches for reflecting such grants:

• Deferred Income Method

1. 1. The grant is recognised as deferred income in the balance sheet.
   2. It is then systematically credited to profit or loss over the useful life of the asset.
   3. This method ensures a matching of income with the related amortisation expense.

• Reduction from Asset Method

1. 1. The grant is deducted from the carrying amount of the broadcasting license.
   2. This reduces the amortisation expense over the asset’s useful life.
   3. It leads to a lower asset base and thus a lower charge to the income statement.

Both approaches are acceptable under Ind AS, and the choice depends on the entity’s accounting policy and disclosure practices.

4. Ensuring Transparency and Compliance in Financial Statements

By appropriately classifying the broadcasting license and recognising the government assistance in line with Ind AS 38 and Ind AS 20, entities ensure:

• Faithful representation of the transaction,
• Compliance with Indian Accounting Standards, and
• Transparency for users of the financial statements.

Such disclosures also enhance stakeholders’ understanding of how government support impacts a company’s financial position and performance.

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