Classification and Accounting Treatment of Export Incentive Received on Export of Goods
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- Last Updated on 14 December, 2023
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After getting the export order from foreign countries, a company manufactures and exports goods to various countries. On the export of goods, the company is getting export incentives under the Foreign Trade Policy (FTP) of the Government of India. The company is treating export incentives as government grants and presenting them under the head “Other Operative Income”.
On yearly audit, the auditor objected to the above practice of classifying the export incentive as “Other Operative Income”. The auditor’s contention is based upon Para 29 of Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance, which states that grants related to income are presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expense.
Forming basis from the above para, the auditor believes that export incentives shall be presented under the head “Other Income” instead of “Other Operative Income”.
In order to resolve this dilemma, the management has approached Expert Advisory Committee (EAC) for its opinion on the correct classification of export incentives received on export of goods.
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