Ind AS 20 – Asset Grant Refund on Non-Compliance Explained

1. Question

Harvex Agro Industries Limited (hereinafter referred to as “the company”), a company engaged in agricultural equipment manufacturing, received a government grant of Rs. 50,00,000 on 30th September, 2024, to support the purchase of eco-friendly machinery. The grant is directly linked to the acquisition of the asset and is conditional upon the fulfillment of specific performance criteria, namely, the installation of the machinery at the Company’s rural facility and the maintenance of a workforce of at least 100 employees for a minimum period of three years. In case of a breach of maintaining 100 employees in any of the three years, the grant shall be fully refundable

In FY 2024-25, the Company purchased the machinery of Rs. 80,00,000 on 1st October, 2024, having a useful life of 10 years and successfully met the employment requirement, thereby recognising the government grant in its financial statements for the financial year 2024–25. However, during the financial year 2025–26, the Company failed to maintain the required minimum workforce of 100 employees, resulting in non-compliance with one of the stipulated grant conditions.

State the appropriate accounting treatment for recognising a government grant, including the implications of a possible refund, under the Indian Accounting Standards (Ind AS) framework.

2. Relevant Provision

Ind AS 20 – Government Grant:

Para 3 – Government grants are assistance by the 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.

Para 7 – Government grants, including non-monetary grants at fair value, shall not be recognised until there is reasonable assurance that:

(a) the entity will comply with the conditions attaching to them; and

(b) The grants will be received.

Para 8 – A government grant is not recognised until there is reasonable assurance that the entity will comply with the conditions attaching to it, and that the grant will be received. Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to the grant have been or will be fulfilled.

Para 24 – Government grants related to assets, including non-monetary grants at fair value, shall be presented in the balance sheet either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset.

Para 25 – Two methods of presentation in financial statements of grants or the appropriate portions of grants related to assets are regarded as acceptable alternatives.

Para 26 – One method recognises the grant as deferred income that is recognised in profit or loss on a systematic basis over the useful life of the asset.

Para 27 – The other method deducts the grant in calculating the carrying amount of the asset. The grant is recognised in profit or loss over the life of a depreciable asset as a reduced depreciation expense.

Para 32 – A Government grant that becomes repayable shall be accounted for as a change in accounting estimate (see Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors). Repayment of a grant related to income shall be applied first against any unamortised deferred credit recognised in respect of the grant. To the extent that the repayment exceeds any such deferred credit, or when no deferred credit exists, the repayment shall be recognised immediately in profit or loss. Repayment of a grant related to an asset shall be recognised by increasing the carrying amount of the asset or reducing the deferred income balance by the amount repayable. The cumulative additional depreciation that would have been recognised in profit or loss to date in the absence of the grant shall be recognised immediately in profit or loss.

3. Analysis

In the present case, the company received a government grant of Rs. 50,00,000 in April 2024, directly related to the acquisition of eco-friendly machinery. By March 2025, the Company has fulfilled these initial conditions and therefore, in line with Para 7 and Para 8, the grant shall be appropriately recognised in FY 2024–25, based on the reasonable assurance of compliance and receipt. The grant, being related to the asset, may be accounted for using either of the two acceptable presentation methods outlined in Para 24 to Para 27:

Option 1 – Setting up the grant as deferred income and amortising it to profit or loss over the useful life of the asset, or

Option 2 – Deducting the grant from the carrying amount of the asset and recognising a lower depreciation expense. The Company chose one of these acceptable methods at the time of initial recognition, based on its accounting policy.

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