The Institute of Chartered Accountants of India (ICAI) has come up with the exposure draft on AS 12(revised). AS 12 (exposure draft) deals with accounting for Government grants and disclosure of Government assistance. AS 12 deals with the accounting of Govt. grants. Such grants are also referred to as subsidies, cash incentives, duty drawbacks etc. It is necessary to understand the following terms for having a better hand on the comparatives.
Government refers to government, government agencies and similar bodies whether local, national or international.
Government Assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria.
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.
Fair Value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable willing seller in an arms length transaction.
On the lines of IAS 20 the ICAI has formulated an Exposure Draft and the comparative study of the same is given below –
|
BASIS |
AS 12-EXISTING |
EXPOSURE DRAFT OF AS 12 |
|
Scope |
Only deals with Govt. Grants |
Also deals with Govt. assistance which do not fall within the definition of grants. |
|
Accounting of non-monetary Govt. grants |
Grants in the form of non-monetary assets to be valued at their nominal value only. |
It provides an option to account either at fair value or at nominal value. |
|
Grants in respect of non-depreciable assets. |
Prescribes two approach viz. capital approach and income approach. Under capital approach grants are directly credited to shareholders’ fund whereas under income approach grants are taken to income over one or more periods |
Grants should be recognized as income over the period necessary to match them with the related costs which they are intended to compensate, on a systematic basis. They should not be directly credited to shareholders funds. |
|
Grants in the nature of promoters contribution |
Directly credited to shareholders fund. |
Grants should be recognized as income over the period necessary to match them with the related costs which they are intended to compensate, on a systematic basis. They should not be directly credited to shareholders funds. |
It comes into effect in respect of accounting periods commencing on or after the date to be announced by the council of the Institute of Chartered Accountant of India in due course. It becomes mandatory in nature from that date. You can send your comment on the exposure draft to the ICAI, by email – edcommentsasb@icai.org.
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