Government Grant Accounting | Differentiating Depreciable and Non-Depreciable Assets in Cavern Construction
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- Last Updated on 21 October, 2024
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This case study outlines the establishment of strategic crude oil reserves in India, initiated by the Union Cabinet in 2004, leading to the formation of a subsidiary company. By 2019, the company operated storage caverns funded by the Oil Industry Development Board. In July 2021, the Cabinet approved partial commercialization, enabling the company to lease 30% and buy or sell 20% of its storage capacity. For expanding storage capabilities, the company received ?210 crores for land acquisition in Phase II, categorized as a financial liability, with grants as ‘Other Financial Liability’ and land costs as ‘Other Non-Current Assets’ under Indian Accounting Standards.
It thoroughly examines the accounting treatment of government grants received for land acquisition related to strategic oil reserve projects. It focuses on the provisions of Ind AS 20 and discusses the classification and recognition of these grants, especially concerning non-depreciable assets. By referring to the EAC opinion in this regard, the document aims to clarify appropriate accounting practices while ensuring compliance with established standards.
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