A company, B Ltd. is a first-time adopter of Ind AS from April 1, 2017. One year ago, it received a contribution from the government (which holds 100% shareholding in B Ltd.) in the nature of promoters’ contribution. As per the previous GAAP, the contribution was recognized as capital reserve in accordance with AS 12, Accounting for Government Grants.
The company has following queries:-
1) How the contribution shall be treated on transition to Ind AS?
2) How the contribution shall be treated under Ind AS if the same has been received after transition to Ind AS?
Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance deals with the contributions made by the government. Ind AS 20 does not cover contributions made by a government in the capacity of shareholder. So, Ind AS 20 is applicable only when the contribution is provided as a government, not as a shareholder. Where the contribution is in the nature of government grant then as per Ind AS 101, Firsttime Adoption of Indian Accounting Standards, Ind AS 20 shall apply retrospectively to the grant. Ind AS 20 requires the government grant to be recognised as income over the periods in which related expenditure is recognised as expense to profit or loss.
Where the contribution is in the nature of shareholder contribution which is recognised in capital reserve under previous GAAP, such contributions (i.e. capital reserve) should be transferred to any appropriate category under “Other Equity” at the transition date in accordance with para 10 of Ind AS 101.
Accordingly, in the present case,
1) B Ltd. is required to transfer the balance of contribution received from the government in the nature of promoters’ contribution to appropriate category under “Other Equity” at the transition date.
2) There will be no change on treatment of the contribution even of it is received subsequent to the transition date.
- Issue 3 of Ind AS Transition Facilitation Group Clarification Bulletin 9