NAS 20 : Accounting for

Government Grants
and Disclosure of
Government Assistance
CA ANISH GYAWALI
 • Government refers to government, government agencies and
similar bodies whether local, national or international.

• Government assistance is action by government designed to

provide an economic benefit specific to an entity or range of entity’s
qualifying under certain criteria.
− Government assistance for the purpose of this Standard does not
include benefits provided only indirectly through action affecting
general trading conditions, or the provision of infrastructure in
development areas or the imposition of trading constraints on
competitors.

Definitions • 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.
− Government grants are sometimes called by other names such as
subsidies, subventions, or premiums.
 • Grants related to assets are government grants whose primary
condition is that an entity qualifying for them shall purchase,
construct or otherwise acquire long– term assets.
− Subsidiary conditions may also be attached restricting the type or
location of the assets or the periods during which they are to be
acquired or held.
•
Definitions • Grants related to income are government grants other than those
related to assets.
•
• Forgivable loans are loans which the lender undertakes to waive
repayment of under certain prescribed conditions.
 • 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.
Recognition
• However, Receipt of a grant does not of
itself provide conclusive evidence that the
conditions attaching to the grant have
been or will be fulfilled.
How to Account for Government Grant?
Example
ABC Ltd received grant
of Rs 40 000 to acquire
a water cleaning station.
The cost of the station
was Rs 80 000 and its
useful life is 8 years. ABC
acquired the station on
1 Shrawan 2077 and
recognized depreciation
on a straight-line
monthly basis.
• Option 1 : Deferred Income
• ABC can credit the grant to deferred
income and amortize it over the
useful life of a water cleaning station
in order to match the grant income
with the relevant costs (in this case
depreciation charges).
Cash A/C Dr 40000
To Deferred Grant 40000
Deferred Grant Dr 40000*1/8=5000
To Grant Income 40000*1/8=5000
• Option 2 : Deduct from PPE
ABC can deduct the grant amount to
arrive at carrying amount of a water
cleaning station. Then its recognition in
profit or loss is automatically reflected
in depreciation charges.
On receipt of grant
Bank A/C Dr 40000
To PPE 40000
Depreciation (Before grant) =
80000/8=Rs 10000
Depreciation (After Grant)= (80000-
40000)/8=5000
 Answer:
The entity should recognize the grant as
Example income on the straight line basis over the
AB Limited received a five years i.e. Rs.200,000 per annum for the
grant of Rs.1,000,000 for coming five years.
the transportation cost of
salt to Humala – Jumala. On receipt of grant:
The entity expects that
the transportation cost
Bank A/C Dr 1000000
will be Rs.300,000 per To Deferred Grant 1000000
annum for the next five
years. How should the
grant be treated by AB Subsequently equally for 5 years
Limited?
Deferred Grant Dr 200000
To Grant Income 200000
 The grant relates to the expenses
Example that had already been incurred in
ABC Hospital the financial year.
limited received As a result, the grant is recognized
grant of Rs 50 lakhs immediately in profit or loss.
for treatment of i.e.
covid patients Bank A/C Dr 50 Lakhs
provided free of To Grant Income 50 Lakhs
cost during FY
2077-78.
 − If a grant becomes repayable, it should be
treated as a change in estimate. Where the
original grant related to income, the repayment
should be applied ;
a. first against any related unamortised deferred
Treatment income/credit, and
for b. any excess should be dealt with as an expense.
− Where the original grant related to an asset, the
Repayment repayment should be treated as increasing the
carrying amount of the asset or reducing the
of Grant deferred income balance.
− The cumulative depreciation which would have
been charged had the grant not been received
should be charged as an expense.
 • The following must be disclosed:
• accounting policy adopted for grants,
Disclosure including method of balance sheet
presentation
of • nature and extent of grants recognised in
Government the financial statements
Grants • unfulfilled conditions and contingencies
attaching to recognised grants