Export Incentives Linked to Operations Shall be Classified as ‘Other income’ Under Ind AS 20

When a company become is eligible to claim 2% of its FOB value of exports as export incentives in the form of scrips, which could be used for payment of custom duty against imports or could be sold in the open market. The accountant has classified the export incentive received on the export of goods that are directly linked to the normal continuing business operations, as “other operating revenue” in pursuance to Ind AS 115.

However, paragraph 3 of Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance, ‘government grants’ are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.

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 whether the classification of the incentive linked to normal business operations of the company shall be classified as “other operating income” as per Ind AS 115 or “other income” as per Ind AS 20.

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