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Editorial Board on Accounts and Audit
  • Custom duty exemption for EOU- is it a Government Gran

    by Ajith on Monday, January 07, 2019 at 12:13 PM

    An EOU Unit is allowed to Import Raw material without payment customs duty. Is this to be treated as Government grants under IND AS 20. If yes, what is the accounting treatment and method of allocating Government grants over the period?

    Replied byEditorial Board Wednesday, January 16, 2019 at 11:06 AM

    Ind AS 20 defines government grant as assistance by government in the form of transfer of resources to an entity in return for past or future compliance with certain conditions relating to its operating activities. It also include reduction of a liability to the government.

    In this case, government has exempted the the entity to pay custom duties on import of raw materials. It may be considered as reduction in liability to the government. Hence, such type of assistance by the government shall be treated as government grant under Ind AS 20.

    As far as accounting of grant is concerned, it needs to be determined whether the grant is revenue or capital in nature. Accounting should be done accordingly.

    If the grant is related to income (which appears to be the case in the query) then

    (A) Presentation
    the Grants related to income are presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expense.

    (B) Accounting
    Government grants shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate.

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