Disclosure of Feedstock Subsidy

A. Facts of the Case

• A Company, which is a joint venture (JV) company of G Ltd., O Ltd., N Limited and Government of Assam, (GoA) under the administrative control of Department of Chemicals & Petrochemicals, Ministry of Chemicals & Fertilizers.
• As per JV agreement, G Ltd. holds 70% of the equity stake and O Ltd., N Ltd. and GoA shall hold 10% each. The Company has set up a 280 KTPA petrochemical complex at Lepetkata, district Dibrugarh, Assam and implemented the flagship project of Government of India called “Assam Gas Cracker Project (AGCP)”.
• The Cabinet Committee on Economic Affairs (CCEA) at its meeting held on 24.12.2019 approved feedstock subsidy to the Company for 15 years of plant operation to maintain minimum internal rate of return (IRR) of 10% (post-tax). To bring the IRR to 10%, the Company has estimated feedstock subsidy of approximately Rs. 4,600 crores for the project for 15 years of plant operation as per the approved methodology.

B. Issue

The opinion of the Expert Advisory Committee is sought as to whether the feedstock subsidy claims for previous years (till 31.03.2019) is to be presented as an ‘Exceptional Item’ in the statement of profit and loss for the financial year ended 31.03.2020. Alternatively, whether the above transaction can be considered as ‘Other Income’ as a separate line item and recognized in the financial statements accordingly.

C. Points considered by the Committee

• When items of income or expense are material, an entity shall disclose their nature and amount separately.
• An entity shall present additional line items, headings and subtotals in the statement of profit and loss, when such presentation is relevant to an understanding of the entity’s financial performance.”

D. Opinion

The Committee is of the opinion that the feedstock subsidy claims of previous years cannot be classified as ‘exceptional item’. Further, considering the requirements of Ind AS 20, the feedstock subsidy in the extant case may be presented as a part of the statement of profit and loss either separately or under the general head of ‘other income’ considering the materiality of the item. However, whether this item is material or not and accordingly whether or not it requires separate disclosure, is a matter of judgement and the same should be decided by the Company in its own facts and circumstances. The above opinion was affirmed by the ICAI Expert Advisory.

Bijhon Bordoloi, Audit Associate, SW India