Difference Between AS 12 and Ind AS 20

Accounting Standard 12 - Accounting for Government Grants, AS 12 deals with accounting for government grants such as subsidies, cash incentives, duty drawbacks, etc. and specifes that the government grants should not be recognised until there is reasonable assurance that the enterprise will comply with the conditions attached to them, and the grant will be received. The standard also describes the treatment of non-monetary government grants; presentation of grants related to specifc fxed assets and revenue and those in the nature of promoters’ contribution; treatment for refund of government grants etc

Ind AS 20

Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance

This Standard shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assistance.

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.

In this Standard, government assistance does not include the provision of infrastructure by improvement to the general transport and communication network and the supply of improved facilities such as irrigation or water reticulation which is available on an ongoing indeterminate basis for the benefit of an entire local community.

Difference Between AS 12 and Ind AS 20

AS 12 Ind AS 20
AS 12 requires that if the asset is given by the government at a discounted price, then the asset and the grant shall be accounted at such discounted purchase price. Further, assets given free of cost are to be accounted at nominal values. Ind AS 20 states that in case the asset is acquired at nominal or concessional rate, then the asset and the grant shall be accounted at fair value, as such a treatment will be conceptually superior, as compared to  valuation at discounted purchase price and will also result into presentation of information in more relevant manner.

Under AS 12, grants related to assets can either be:

  • Credited to Capital Reserve or be treated as deferred income or
  • Deducted from the cost of the asset to arrive at its carrying value.
Ind AS 20 permits only the deferred income approach. Hence, the option of deducting the grant from the gross value of asset, to arrive at its carrying value is not available in Ind AS 20.
AS 12 deals only with Government Grants. Ind AS 20 also deals with certain other forms of government assistance. It states that such other forms of government assistance, from which the entity is directly benefited, be disclosed in the Financial Statements.
AS 12 states that the government grants, in the nature of promoter’s contribution should be credited directly to Capital Reserve (Part of shareholder’s funds) Ind AS 20 is based on the principle that all government grants would normally have certain obligations attached to them. So, it states that all the grants should be recognised as income over the periods, which bear the cost of meeting the obligation. (i.e. treated as deferred income)

AS 12 permits the following alternative treatments for grants in respect of non-depreciable assets:

  • Deduct from the cost of the asset or
  • Credit to Capital Reserve (part of Shareholder’s Funds). However, if the procurement of grant have certain future obligations to be fulfilled, then such grant shall be treated as deferred income and credited to P&L Account, over the periods, which bear the cost of meeting obligation.
Ind AS 20 is based on the principle that all government grants would normally have certain obligations attached to them. So, it states that all the grants should be recognised as income over the periods, which bear the cost of meeting the obligation. (i.e. treated as deferred income)
AS 12 does not require such accounting treatment. Ind AS 20 requires that the loans received from a government at less than market rate of interest (i.e. at concessional rate of interest)  should be recognised and measured in accordance with Ind AS 109. As per Ind AS 109, all the loans have  to be recognised at fair values. Therefore, the value of concession, i.e. the difference between the proceeds received and the value as per Ind AS 109 shall be treated as Government Grant, to be accounted for, as per Ind AS 20.