Accounting of Export Incentives

Accounting for Government Grants can be complex because grants may be subjected to numerous conditions, some of which could provide conflicting signals as to what the grant is trying to compensate or incentivise. Additionally, Ind AS 20 is based on the legacy IAS 20, which has not been revised for many years and may have outlived its utility. The accounting of the grant should reflect what the grant is meant to do, on a broad level. Here, we look at an export incentive scheme and discuss the various accounting issues and the appropriate Ind AS accounting and presentation.

QUERY

Gopaldas Exports Ltd (GEL), the exporter, is eligible to receive export incentives for merchandise exports under the RoDTEP (Remission of Duties and Taxes on Exported Products) Scheme under the Foreign Trade Policy of the Government of India. Under the scheme:

1. GEL is entitled to receive Duty Credit Scrips (DCS) ranging from 1.5 per cent to 2 per cent of the exported goods, depending on the type of product exported.

2. DCS can be used by the GEL for payment of import duty or it may sell it in the market. Typically, the DCS scrips would fetch 80 per cent to 95 per cent of the value in the market, depending upon the demand and supply for DCS at the time of sale.

3. DCS is