ADVISE the appropriate accounting treatment, if any, for the two grants received and the earthquake-related compensation in the books of accounts of…

Accounting treatment as per IND AS 20, Accounting for Government Grants and Disclosure of Government Assistance: 1. First Grant of 5crore – research on “Soil degradation due to misuse of fertilizers" The first grant for “Soil degradation due to misuse of fertilizers” involving research into effects of excessive use of fertilizers on soil quality (acidification, hardening and pollution) based on a specific area from a predominantly agricultural belt in Punjab. Since, the grant is unconditional and no details regarding its refund have been mentioned. Even though research has not started, nor major steps have been completed by SAL to commence the research, yet the grant will be immediately recognized in the profit and loss for the year ended March 31, 2025. 2. Second Grant of 5crore - relates to the commercial development of crop-specific nutrition solution that will provide each crop variety with specific nutrients that it will need to grow. As per the information given in the case study, these solutions will be available in the market by April 2026. Hence, by that time, grant relates to the development of new technological solution (which is an asset) and should be initially recognized as deferred income. The deferred income should be recognized as income on a systematic and rational basis over the useful life of this new technology. For the grant received of 5crores, SAL should recognize a liability in the balance sheet as of March 31, 2025, and March 31,2026. Once the technology is used in the commercial development of crop-specific nutrition, the deferred grant income of 5crores should be recognized over the useful life of this new technology to compensate for depreciation costs. Alternatively, as per Ind AS 20 SAL would be permitted to offset the deferred income of 5crores against the cost of development of this technology as at April 1, 2026. 3. Earthquake related compensation – SAL will be able to submit an application form only after May 31, 2025 i.e. in the F.Y. 2025-26. Although the earthquake happened in September 2024 relating to the financial year 2024-25, SAL should recognize the income from the government grant in the year the application is submitted and approved by the government for compensation. Since in the F.Y. 2024-25, the application form could not be submitted due to adoption of financials with respect to sales figure before earthquake occurred, SAL should not recognize the grant income as it has not become receivable as at March 31, 2025.