Accounting of the Forgivable Loan from the Government

Para 10 of Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance, states that a forgivable loan from the government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan. Further, para 29 states that grants related to income are presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expense.

This story discusses a scenario in which the state government has granted loan forgiveness to a company that sells affordable stationary items to underprivileged children. It also includes how the company records this forgiveness in its financial accounts.

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