Rainbow Limited is carrying out various projects for which the company has either received government financial assistance or is in the process of…

1. First Grant The first grant for 'Clear River Project' involving research into effects of various chemicals waste from the industrial area in Madhya Pradesh, seems to be unconditional as no details regarding its refund has been mentioned in the question. Even though the research has not been started nor have major steps been completed by Rainbow Limited to commence the research, the grant will be recognised immediately in profit or loss for the year ended 31 March, 20X5. Alternatively, in case, the grant is conditional as to expenditure on research, the grant will be recognised over the years the expenditure is being incurred and recognised in the books of Rainbow Limited. 2. Second Grant The second grant related to commercial development of a new equipment is a grant related to depreciable asset. As per the information given in the question, the equipment will be available for sale in the market from 1 April, 20X6. Hence, by that time, grant relates to the construction of an asset and should be initially recognised as deferred income. The deferred income should be recognised as income on a systematic and rational basis over the asset's useful life. The entity should recognise a liability on the statement of financial position for the years ending 31 March, 20X5 and 31 March, 20X6. Once the equipment starts being used in the manufacturing process, the deferred grant income of ₹ 1,00,000 should be recognised over the asset's useful life to compensate for depreciation costs. Alternatively, as per Ind AS 20, Rainbow Limited would also be permitted to offset the deferred income of ₹ 1,00,000 against the cost of the equipment as on 1 April, 20X6. 3. For flood related compensation Rainbow Limited will be able to submit an application form only after 31 May, 20X5 ie in the year 20X5-20X6. Although flood happened in September, 20X4 and loss was incurred due to flood related to the year 20X4-20X5, the entity should recognise the income from the government grant in the year when the application form related to it is submitted and approved by the government for compensation. Since, in the year 20X4-20X5, the application form could not be submitted due to adoption of financials with respect to sales figure before flood occurred, Rainbow Limited could not recognise the grant income as it has not become receivable as on 31 March, 20X5.