A grant is a sum of money given by a Government for a purpose. It could be given to promote a small business or for a public cause etc.
Usually, Companies are required to fulfill certain conditions to receive the grant.
Government Grants are something special and are not something which happens on day to day basis.
When we talk about a Government Grant, we are talking about a Grant received from any Government, be it Local, National or International.
ACCOUNTING STANDARD TO BE FOLLOWED
Once the Company receives the Government Grant, it has to be recorded in the books by following proper standards.
It requires some stringent practices or rules to be followed while accounting for a Government Grant, since the assistance is given by the Government.
The method to be followed, to account for a Government Grant is mentioned in the Accounting Standard 12 – Accounting for Government Grants (Ind AS 20)
The Standard is followed to know how much of grant is received, when it is received, nature of the grant, to what extent an expenditure has been funded by the Government and finally, to facilitate the comparison with similar entities.
ACCOUNTING TREATMENT IF GRANT IS RECEIVED SPECIFICALLY TO FUND AN ASSET:
If the Grant is received to fund a specific asset, then the gross value of an asset, that is the value before charging any depreciation is reduced by the amount of grant to arrive at the net book value of the asset.
The asset is then depreciated over its useful life, like any other asset.
In case, the grant received, equals the value or virtually the whole, of the cost of the asset, the asset should be shown in the balance sheet at Nominal Value.
Let us talk about other type of grants in coming posts. Subscribe to www.therankholder.org for notification on new posts.
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