Recognise qualifying past-loss compensation when it becomes receivable
Ind AS 20 paragraph 20 recognises in profit or loss a government grant that becomes receivable as compensation for expenses or losses already incurred, or as immediate financial support with no future related costs, in the period it becomes receivable. Paragraphs 21 and 22 address the related fact patterns and disclosure. A grant for a previous period's costs can therefore enter current profit when entitlement first arises now, without retrospectively netting it against the old expense.
Read the applicable text: MCA Ind AS 20, paragraphs 7–8, 12, 20–22, 29–32 and 39.
Test reasonable assurance and evidence of entitlement
Paragraph 7 requires reasonable assurance both that the conditions will be complied with and that the grant will be received. A government announcement, application, internal estimate or even receipt does not alone prove the grant conditions have been or will be fulfilled. Read the scheme and sanction together. Identify the event that establishes the qualifying claim, any unresolved substantive conditions and the amount supported by evidence at the reporting date.
Separate grants with future obligations
The ordinary paragraph 12 approach recognises government grants in profit or loss systematically over the periods in which the related compensated costs are recognised. If a scheme has past-cost compensation and a future-cost component, assess the terms and allocate on a supported basis where separable. The fact that cash is received in one amount does not determine the period for all components. Analyse conditions, potential repayment and any post-reporting-date development separately.
Bridge receivables, cash and disclosures
Reconcile the amount recognised in profit or loss to cash and the closing grant receivable. For an income-related grant, paragraph 29 permits separate presentation in profit or loss (including within other income) or deduction from the related expense. That option does not reopen expenses of a previous period. Disclose the accounting policy and presentation method, nature and extent of grants recognised, other government assistance directly benefiting the entity, and unfulfilled conditions and other contingencies attached to recognised assistance, as applicable under paragraph 39. Explain the effect where needed to understand the financial statements. Keep tax treatment and any impairment or recoverability question separate from the accounting recognition decision.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Prior costs, current entitlement
A company incurred ₹25 lakh of eligible costs last year. This year a qualifying ₹15 lakh grant first becomes receivable with reasonable assurance. Recognise ₹15 lakh in current profit or loss; the prior-year cost is not reopened merely because compensation arrives now.
Illustrative example 2: Cash received in instalments
A qualifying ₹32 lakh past-loss grant has been recognised by close, of which ₹11 lakh has been collected. The supported income is ₹32 lakh and the closing receivable is ₹21 lakh, assuming no other changes or impairment.
Illustrative example 3: Announcement before entitlement
A scheme mentions potential support of ₹20 lakh, but the company has no reasonable assurance at close on the assumed facts. Recognise no grant for that claim at that date; ₹20 lakh remains a candidate amount, not a booked receivable.
Illustrative example 4: Separate past and future costs
A supported ₹50 lakh grant consists of ₹30 lakh for already-incurred costs and ₹20 lakh solely for eligible future costs not yet recognised. Assume distinct components, no other conditions and reasonable assurance. ₹30 lakh enters current profit; the ₹20 lakh future-cost component is not current-period grant income; recognise it systematically as the related costs are recognised.
Illustrative example 5: Immediate support with no future related costs
An entity qualifies for ₹18 lakh of immediate support before close and receives ₹7 lakh by that date. On the stated facts the profit impact is ₹18 lakh and the receivable is ₹11 lakh.
Illustrative example 6: Closing bridge for two cohorts
Opening receivable is ₹8 lakh; the entity receives ₹6 lakh against it. A new qualifying grant of ₹14 lakh is recognised and ₹5 lakh of that cohort is received. Total cash is ₹11 lakh and closing receivable ₹11 lakh; current grant income from these movements is ₹14 lakh.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Read the scheme | Notification and operating terms |
| 2 | Identify purpose and compensated costs | Cost and grant mapping |
| 3 | Separate future conditions | Conditions and cost-period register |
| 4 | Determine the qualifying event | Sanction and claim evidence |
| 5 | Test reasonable assurance | Compliance and receipt support |
| 6 | Measure the eligible amount | Approved claim calculation |
| 7 | Separate recognition and cash dates | Receivable and bank evidence |
| 8 | Review later developments | Reporting-date evidence assessment |
| 9 | Prepare presentation and disclosure | Profit impact and explanatory note |
| 10 | Reconcile the closing balance | Cohort ledger and sign-off |
Sixteen practitioner FAQs
1. Does last year's expense force last year's grant recognition?
No. Apply the period in which the grant becomes receivable under paragraphs 20–22.
2. Is cash receipt mandatory for recognition?
No. Test entitlement and reasonable assurance.
3. Does cash prove all conditions will be met?
No. Review the conditions separately.
4. Can a public announcement alone support an asset?
It must be assessed against the actual entitlement and recognition criteria.
5. What if the grant funds future expenditure?
Apply the systematic matching rule to the relevant component.
6. Can one approval cover different recognition patterns?
Yes, if the facts support distinct components.
7. What is immediate financial support in this context?
Support with no future related costs under the stated paragraph 20 route.
8. Can an unsigned claim estimate enter profit?
Support the grant and amount under the applicable criteria first.
9. Are payments on old receivables new income?
Not merely because cash is received.
10. How are partial receipts handled?
Reconcile the cash to the recognised receivable.
11. Does a reimbursement automatically reduce last year's costs?
No. Apply the actual receivable date and presentation requirements.
12. What if approval arrives after year-end?
Assess what it evidences under the applicable subsequent-event requirements.
13. What if the government can demand repayment?
If a grant becomes repayable, paragraph 32 treats that as a change in accounting estimate. For an income grant, apply the repayment first against any remaining unamortised deferred credit for that grant, then recognise any excess in profit or loss. If there is no deferred credit, recognise the full repayment in profit or loss.
14. Does accounting recognition decide tax treatment?
No. Apply the relevant tax law independently.
15. What must disclosure explain?
The nature and material effect of the grant, with applicable conditions and policy.
16. What supports the closing working?
Scheme terms, qualification, recognition date, amount and cash reconciliation.