Ind AS 20 requires government grants to be recognised in profit or loss on a systematic basis over the periods in which the entity recognises the related costs the grant is intended to compensate — never recognised directly in equity, and never recognised in full the moment cash is received if the grant relates to future expenditure or performance. A grant related to income is matched against the expense it offsets; a grant related to an asset is recognised over the asset's useful life, matched against the depreciation the asset itself generates.
Two presentation choices for an asset-related grant
| Method | How it works |
|---|---|
| Deferred income | The grant is recognised as deferred income and released to profit or loss systematically over the asset's useful life |
| Deduction from the asset's carrying amount | The grant reduces the asset's carrying amount directly, so depreciation is calculated on the net (post-grant) carrying amount — the grant's effect shows up as lower depreciation rather than as separate grant income |
When a grant is recognised at all
- 01Reasonable assurance the entity will comply with any attached conditionsA grant conditional on maintaining a certain employment level or completing a project shouldn't be recognised before it's reasonably certain those conditions will be met.
- 02Reasonable assurance the grant will actually be receivedA government scheme the entity has applied for but not yet been approved under is not yet a grant to recognise, even if approval is expected.
A grant received in cash up front, for a multi-year performance condition, is still recognised over the periods the condition relates to — not fully as income in the year of receipt. Recognising the full amount immediately because the cash has already arrived confuses the cash event with the income recognition pattern, which Ind AS 20 deliberately separates.
Common practice, not a requirement
A government grant in the form of a below-market-rate loan — common for specific industry incentive schemes — has a grant element equal to the benefit of the below-market interest rate, which has to be separately measured and accounted for as a grant under this standard, not ignored simply because no cash grant was separately paid.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Fixed assets & capexInd AS 16: property, plant and equipment — recognition, componentization and derecognitionA single asset with parts that wear out on different schedules isn't one depreciation calculation — Ind AS 16 requires splitting it, and a lot of fixed asset registers still don't.
- Audit documentationInd AS 37: provisions, contingent liabilities and contingent assets — the three-way splitThree categories, three completely different treatments — recognise it, disclose it, or say nothing. Getting the category wrong is the whole misstatement.
- Fixed assets & capexCapex vs revenue expenditure: the audit testThe capitalisation criteria, the repairs-versus-improvement judgement calls that actually come up, and how to sample repairs and maintenance for misclassified capex.
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