A Company, state government undertaking, is mainly engaged in the activity of distribution of food grains under public distribution system (PDS). The company meets its requirements of food grains by purchases thereof from the Food Corporation of India. The company procures wheat from farmers under price support operation.
The company gets subsidy under a scheme from the Government of India. Subsidy is the differential amount between the provisional economic cost and the central issue price, both approved by the Government of India. The company realises central issue price from the consumers under the PDS and other schemes.
The Government of India approved the economic cost. With regards to provision of payment, the subsidy shall be paid under scheme at the rate of 95% and the balance 5% will be released based on the final audited accounts and determination of final economic cost.
The company has sought the opinion on the following issues arising from the above:
(a) whether the company can defer 5% of the subsidy till final economic cost is decided by the Government of India on the ground that it does not accrue until the order for final economic cost is issued by the Government of India, as the company was paying income tax on the 100% subsidy (other income).
On the basis of the above, the opinion in respect of the issues raised by the company:
(a) The monthly subsidy received by the company, depends upon the provisional economic cost and that the final subsidy is determined on the basis of final economic cost determined by the Government of India.
(b) It is possible that the amount of final subsidy receivable by the company may be less than the amount of 95% subsidy received by the company. In such a case, the excess may have to be refunded to the Government.
(c) Government grants should not be recognised until there is reasonable assurance that (i) the enterprise will comply with the conditions attached to them, and (ii) the grants will be received.”(As per AS 12 and IND AS 20’ Accounting for Government Grants’.
On the basis of the above, the company should defer recognition of the 5% of the subsidy receivable from the Government to the extent of uncertainty involved till final economic cost is decided by the Government of India.
The above opinion was affirmed by the ICAI-Expert Advisory Committee
