ICDS – 7

Government Grants

By- CA Premlata Daga

B.Com, CA, LCS, DISA (ICAI)
Scope of ICDS 5:

This Income Computation and Disclosure Standard deals with the treatment of
Government grants. The Government grants are sometimes called by other names such as
subsidies, cash incentives, duty drawbacks, waiver, concessions, reimbursements, etc.

This Income Computation and Disclosure Standard does not deal with:—
(a) Government assistance other than in the form of Government grants; and
(b) Government participation in the ownership of the enterprise”.
 Recognition of Government Grants

Government grants should not be recognized until there is reasonable assurance that the
person shall comply with the conditions attached to them, and the grants shall be
received.

Recognition of Government grant shall not be postponed beyond the date of actual
receipt.
Quick Question:

Rs.50 Lacs received from the State Government with the condition of setting
up of water treatment plant within 2 years. The company is of the view due to
the ongoing hurdles, there is no reasonable assurance that the condition will be
complied.
Solution:

As there is lack of reasonable assurance of fulfilment of condition attached to

the grant the same will not be recognised as per Accounting Standard. However
as per ICDS, recognition of ICDS shall not be postponed beyond the date of
actual receipt.

Therefore the ICDS adjustment is required to be made for computation of

income chargeable of income chargeable to tax.
Quick Question:

A company constructed a solar plant for Rs. 1 Crore for which they received a
grant of Rs.25 Lacs from State Government. In the books of account the
company booked the asset at its gross value and the grant was recorded as
deferred income to be recognised in profit and loss statement over the life of
the asset on some systematic or rational basis.
 TREATMENT OF GRANT RECEIVED FOR DEPRECIABLE ASSET

Where the Government grant relates to a depreciable fixed asset the grant shall
be deducted from the actual cost of the asset or assets concerned or from the
written down value of block of assets to which concerned asset or assets
belonged to.
So as per ICDS the grant of 25 Lacs will be reduced from the block of the
concerned asset.
Quick Question:

A company received a grant to purchase a land on which a school was required

to be constructed to give free education to students from financially backward
class of society for at least 10 years failing which the company would be made
liable to transfer the land in the favour of Government.

The company recognised the grant as a Capital Reserve in the balance sheet.
 TREATMENT OF GRANT RECEIVED FOR NON DEPRECIABLE ASSET

Where the Government grant relates to a non-depreciable asset or assets of a

person requiring fulfillment of certain obligations, the grant shall be recognized
as income over the same period over which the cost of meeting such
obligations is charged to income.
Quick Question:

What shall be the treatment of the grant received as compensation of expenses

or losses incurred in previous years ?
Solution:

The Government grant that is receivable as compensation for expenses or

losses incurred in a previous financial year or for the purpose of giving
immediate financial support to the person with no further related costs, shall be
recognized as income of the period in which it is receivable.”
 GRANTS WHICH ARE NOT DIRECTLY RELATABLE TO SPECIFIC ASSETS

Where the Government grant is of such a nature that it cannot be directly

relatable to the asset acquired, so much of the amount which bears to the total
Government grant, the same proportion as such asset bears to all the assets in
respect of or with reference to which the Government grant is so received, shall
be deducted from the actual cost of the asset or shall be reduced from the
written down value of block of assets to which the asset or assets belonged to.”
Quick Question:

Company received a Land having a fair Value of Rs. 50 Lacs at a concessional

price of Rs.20 Lacs.

The company recorded the land at 20 Lacs and no accounting was done for the
non monetary grant of Rs.30 lacs.
Para 10

The Government grants in the form of non-monetary assets, given at a

concessional rate, shall be accounted for on the basis of their acquisition cost.
 REFUND OF GRANT

The amount refundable in respect of a Government grant referred to in

paragraphs 6, 8 and 9 shall be applied first against any unamortised deferred
credit remaining in respect of the Government grant. To the extent that the
amount refundable exceeds any such deferred credit, or where no deferred
credit exists, the amount shall be charged to profit and loss statement.
 REFUND OF GRANT

The amount refundable in respect of a Government grant related to a

depreciable fixed asset or assets shall be recorded by increasing the actual cost
or written down value of block of assets by the amount refundable. Where the
actual cost of the asset is increased, depreciation on the revised actual cost or
written down value shall be provided prospectively at the prescribed rate.
 REFUND OF GRANT NOT COVERED

The ICDS does not prescribe the treatment of refund for grants in relation to the
following:
(a) Grants which are not directly relatable to acquisition of non depreciable assets; and
(b) Grants in relation to non-monetary assets.

The tax treatment of such refund would depend upon the general principles of the Act.