In this article, we will explain about ICDS VI and its difference with respective Notified Accounting Standard.
Contents:
ICDS VII Government Grants
ICDS VII deals with the accounting treatment of Government grants, subsidies, duty drawbacks, waiver, concessions, incentives, reimbursements, etc.
Recognition of Government Grants:
1. Government grants should not be recognized until there is a reasonable assurance that the conditions attached to such grant will be complied and the grant shall be received
2. Recognition of Government grant shall not be postponed beyond the date when it is actually received
Treatment of Government Grants Received:
1. When the grant has been received in relation to depreciable asset then the amount of grant will be reduced from the actual cost of the asset or the written down value of the block of asset
2. When the grant has been received in relation to a non-depreciable asset which requires fulfillment of certain obligations then the amount of the grant will be recognized as income over the period till when the cost of meeting such obligations is charged to income
3. When the grant is not directly relatable to the asset then so much amount of grant shall be reduced, from the actual cost of the asset or written down value of the block of asset, as it bears to the total grant amount in the proportion as such asset bears to all the assets
4. The grant that is received as a compensation for expenses or losses incurred or for the purpose of giving immediate financial support, shall be recognised as income of the period in which it is received
5. The grants which are in the form of non-monetary assets shall be accounted for on the basis of their acquisition cost
Treatment of Government Grants refunded:
1. The amount refundable in respect of a grant shall be applied against any unamortised deferred credit remaining in respect of the grant, then the balance amount shall be charged to profit and loss statement
2. 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 the 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
Disclosure
1. Nature and extent of Government grants recognised by way of deduction from the actual cost of the asset and/or as income during the year
2. Nature and extent of Government grants not recognised by way of deduction from the actual cost of the asset and/or as income during the year and reasons thereof
Comparison of ICDS VII and AS 12
| Sl. No. | Basis | ICDS VII | AS 12 |
| 1. | Grants of the nature of Promoters’ contribution | ICDS VII does not provide for grants of the nature of promoters’ contribution | They are given with reference to the total investment and treated as capital reserve which can be neither distributed as dividend nor considered as deferred income |
| 2. | Treatment of Grants | The grant should either be treated as revenue receipt or should be reduced from the cost of fixed assets | Capital approach or the income approach are applied to recognize the grant received |
