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AS - 12 ACCOUNTING FOR GOVERNMENT GRANTS
Objective: The main
Objective is how to treat and disclose government grants.
Government grants are also called subsidies, Cash, Incentives,
Duty drawback, etc.
Scope: It is
applicable to all companies with effect from 01.04.1994. Statement
deals with accounting for government grants. Government grants. This
standard does not apply to the following:
·
Government assistance other than in the form of government
grants.
·
If there is Government participation in the ownership of the
enterprise then it does not apply.
Government:
It refers
to government, government agencies and similar bodies whether
local, national or international.
Non-monetary Government grants: If the
government grant is in the form of non-monetary assets given at
concessional rates, the asset is recorded at the
acquisition cost
and the assets given free of cost are recorded at a
nominal value i.e. Rs.
1.
Extra ordinary Grants: The grant
is recognized in the income statement of the period in which it
becomes receivable and wherever appropriate, such grants
may be treated as an ‘extraordinary’ grant. The following are
such circumstances: a. Grant is
awarded for the purpose of giving immediate financial support to
an enterprise with no further related costs. b. Grant is
receivable by an enterprise as compensation for expenses or
losses incurred in a previous accounting period.
Grants by way of Promoter’s
contribution: Grants
given by way of contribution towards its total capital outlay
are termed as government grants in the nature of promoters'
contribution.
Treatment: Government
grants can be accounted either by using
capital approach
or by using income
approach.
Capital approach:
The grant is treated as
part of
shareholder’s funds.
Income approach:
The grant is
taken to
income
over one or more periods to match them with the related
costs. Grants
by way of Promoter’s contribution:
These
grants should be treated as Capital
reserve, which cannot be distributed as dividend or
considered as deferred income.
Disclosure requirements: 1. The
accounting policy adopted for government grants should be
disclosed along with the methods of presentation in the
financial statements 2. The
deferred income is suitably disclosed in the balance sheet. 3. The
amount refundable in respect of, a. A
grant related to revenue should be applied first against any
unamortized deferred credit remaining in respect of the grant
and the excess over such deferred credit balance if any, should
be charged to profit and loss statement b. A
grant related to specific fixed asset should be recorded by
increasing the book value of the asset or by reducing the
capital reserve or the deferred income balance, as appropriate c. A
government grant in the nature of promoters' contribution
should be reduced from the capital reserve. 4. Nature
and extent of government grants recognized in the financial
statements including grants of non monetary assets given at a
concessional rate or free of cost should be disclosed. |
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