Presentation of Government Grant

Facts of the case:
Company X Ltd. is in manufacturing and selling of goods (domestic and export). For building a greenfield project, it can import duty free capital assets provided it meets criteria for export of goods manufactured in future.

Company is capitalising duty saved amount in respective assets by crediting deferred income and the same deferred income is recognised on a systematic basis over the period of export of goods takes place.

Issue/Query:
I would like to know whether amortisation of deferred income will be accounted as "Other Operating Income" or "Other Income".

Response:
The grant of duty rebate shall be presented as ‘Other Income’.

Basis for Response:
1. Paragraph 29 of Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance states as under:
“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.”

Therefore, if the grant is related to income, the grant shall be presented as ‘Other Income’.

2. Paragraph 3 of Ind AS 20 defines Grants related to income as under:
“Grants related to income are government grants other than those related to assets.”

Therefore, to understand whether the grant is related to income, we need to know whether the grant is related to assets. If the grant is not related to assets, it is related to income.

3. Paragraph 3 of Ind AS 20 defines Grants related to Assets as under:
“Grants related to assets are government grants whose primary condition is that an entity qualifying for them should 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.”

4. The condition for availing the grant of duty rebate, as submitted by the querist, is that the company must export goods manufactured. Therefore, the grant is not related to assets. Accordingly, the grant is related to income.

5. Therefore, in accordance with paragraph 29 of Ind AS 20, the grant shall be presented as ‘Other Income’.