ASLB 23 Revenue Non-Exchange

Accounting Standard for Local Bodies (ASLB) 23
Revenue from Non-Exchange Transactions
(Taxes and Transfers)
Contents
Paragraphs
OBJECTIVE 1
SCOPE 2–6
DEFINITIONS 7–28
Non-Exchange Transactions 8–11
Revenue 12-13
Stipulations 14-16
Conditions on Transferred Assets 17-18
Restrictions on Transferred Assets 19
Substance over Form 20-25
Taxes 26-28
ANALYSIS OF THE INITIAL INFLOW OF RESOURCES FROM
NON-EXCHANGE TRANSACTIONS 29
RECOGNITION OF ASSETS 30-43
Control of an Asset 32-33
Past Event 34
Probable Inflow of Resources 35
Contingent Assets 36
Contributions from Owners 37-38
Measurement of Assets on Initial Recognition 42-43
RECOGNITION OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS 44-47
MEASUREMENT OF REVENUE FROM NON-EXCHANGE
TRANSACTIONS 48-49
PRESENT OBLIGATIONS RECOGNISED AS LIABILITIES 50-58
Present Obligation 51-54
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Conditions on a Transferred Asset 55-56
Measurement of Liabilities on Initial Recognition 57-58
TAXES 59–75
The Taxable Event 65
Advance Receipts of Taxes 66
Measurement of Assets Arising from Taxation
Transactions 67-70
Expenses Paid Through the Tax System and Tax
Expenditures 71-75
TRANSFERS 76-105
Measurement of Transferred Assets 83
Debt Forgiveness and Assumption of Liabilities. 84-87
Fines 88-89
Bequests 90-92
Gifts and Donations, including Goods In-kind 93–97
Services In-kind 98-103
Pledges 104
Advance Receipts of Transfers 105
DISCLOSURES 106–115
IMPLEMENTATION GUIDANCE
APPENDIX 1 COMPARISON WITH IPSAS 23, ‘REVENUE FROM NON-
EXCHANGE TRANSACTIONS (TAXES AND TRANSFERS)’

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Accounting Standard for Local Bodies (ASLB) 23
Revenue from Non-Exchange Transactions
(Taxes and Transfers)
(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context
of its objective and the Preface to the Accounting Standards for Local
Bodies1.)
The Accounting Standard for Local Bodies (ASLB) 23, ‘Revenue from Non-
Exchange Transactions (Taxes and Transfers)’, issued by the Council of the
Institute of Chartered Accountants of India, will be recommendatory in nature
in the initial years for use by the local bodies. This Standard will be
mandatory for Local Bodies in a State from the date specified in this regard
by the State Government concerned 2.
The following is the text of the Accounting Standard for Local Bodies:

Objective
1. The objective of this Standard is to prescribe requirements for the
financial reporting of revenue arising from non-exchange
transactions, other than non-exchange transactions that give rise to
an entity combination. The Standard deals with issues that need to be
considered in recognising and measuring revenue from non-
exchange transactions including the identification of contributions
from owners.
Scope
2. An entity that prepares and presents financial statements under
the accrual basis of accounting should apply this Standard in
accounting for revenue from non-exchange transactions. This
Standard does not apply to an entity combination that is a non-
exchange transaction.

1 Attention is specifically drawn to paragraph 4.2 of the ‘Preface to the Accounting
Standards for Local Bodies’, according to which Accounting Standards are intended to
apply only to items which are material.
2 In respect of compliance with the Accounting Standards for Local Bodies, reference

may be made to the paragraph 7.1 of the ‘Preface to the Accounting Standards for
Local Bodies’.

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3. This Standard applies to all entities described as local bodies in
the Preface to the Accounting Standards for Local Bodies 3.
4. [Refer to Appendix 1]
5. This Standard addresses revenue arising from non-exchange
transactions. Revenue arising from exchange transactions is
addressed in ASLB 9, „Revenue from Exchange Transactions‟. While
revenues received by local bodies arise from both exchange and non-
exchange transactions, the majority of revenue of local bodies is
typically derived from non-exchange transactions such as:
(a) Taxes; and
(b) Transfers (whether cash or non-cash), including grants, debt
forgiveness, fines, bequests, gifts, donations, and goods and
services in-kind.
6. Governments may reorganise the local bodies, merging some local
bodies and dividing other entities into two or more separate entities.
An entity combination occurs when two or more operations are
brought together to form one reporting entity. These restructurings do
not ordinarily involve one entity purchasing another operation or
entity, but may result in a new or existing entity acquiring all the
assets and liabilities of another operation or entity. Entity
Combinations should be accounted for in accordance with ASLB on
„Entity Combination4‟.

Definitions
7. The following terms are used in this Standard with the meanings
specified:
Conditions on transferred assets are stipulations that specify
that the future economic benefits or service potential embodied
in the asset is required to be consumed by the recipient as
specified or future economic benefits or service potential must
be returned to the transferor.

3
Refer paragraph 1.3 of the ‘Preface to the Accounting Standards for Local Bodies’.
4 Formulation of ASLB on this subject is yet to be undertaken. Till that time, paragraph
15 of ASLB 3, „Accounting Policies, Changes in Accounting Estimates and Errors‟ may
be referred for guidance on accounting policy hierarchy.

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Control of an asset arises when the entity can use or otherwise
benefit from the asset in pursuit of its objectives and can
exclude or otherwise regulate the access of others to that
benefit.
Contributions from owners 5 means inflows of resources to an
entity, contributed by external parties in their capacity as
owners, towards the corpus of local bodies which establish or
increase an interest in the net financial position of the entity.
Exchange transaction is one in which the entity transfers goods
or services, or use of assets, and receives some value (primarily
in the form of cash, goods, services or has liabilities
extinguished) from the other party in exchange.
Expenses paid through the tax system are amounts that are
available to beneficiaries regardless of whether or not they pay
taxes.
Fines are economic benefits received or receivable by the
entities which are imposed as a consequence of the breach of
laws or regulations 6.
Government refers to government, government agencies and
similar bodies whether local, state, national or international.
Grants are transfers to local bodies in the form of assistance by
government or other entities in cash or kind with or without
conditions.
Non-exchange transactions are transactions that are not
exchange transactions. In a non-exchange transaction, an entity
either receives value from another entity without directly giving
any value in exchange, or gives value to another entity without
directly receiving any value in exchange.
Restrictions on transferred assets are stipulations that limit or
direct the purposes for which a transferred asset may be used,

5 In case of Local Bodies, normally the contribution towards corpus will come from the
Central/ respective State Government. However, where local bodies enter into joint
ventures/SPVs with other entities, the controlling local body itself may contribute in
capacity as owner towards corpus of the controlled entity.
6 Fines also encompass penalities.

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but do not specify that future economic benefits or service
potential is required to be returned to the transferor if not
deployed as specified.
Stipulations on transferred assets are terms in laws or
regulation, or a binding arrangement, imposed upon the use of a
transferred asset by entities external to the reporting entity.
Tax expenditures are preferential provisions of the tax law that
provide certain taxpayers with concessions that are not available
to others.
The taxable event is the event that the government, legislature or
other authority has determined will be subject to taxation.
Taxes are economic benefits or service potential compulsorily
paid or payable to local bodies, in accordance with laws and/or
regulations, established to provide revenue to the local bodies.
Taxes do not include fines/ penalties imposed for breach of the
law.
Transfers are inflows of future economic benefits or service
potential from non-exchange transactions, other than taxes.
Terms defined in other Accounting Standards for Local Bodies
are used in this Standard with the same meaning as in those
other Standards.
Non-Exchange Transactions
8. In some transactions it is clear that there is an exchange of some
value. These are exchange transactions and are addressed in ASLB
9, „Revenue from Exchange Transactions‟.
9. In other transactions, an entity will receive resources and provide no
consideration directly in return. These are clearly non-exchange
transactions and are addressed in this Standard. For example,
taxpayers pay taxes because the tax law mandates the payment of
those taxes. While the taxing entity will provide a variety of public
services to taxpayers, it does not do so in consideration for the
payment of taxes.
10. [Refer to Appendix 1]
11. [Refer to Appendix 1]

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Revenue
12. Revenue comprises gross inflows of economic benefits or service
potential received and receivable by the reporting entity, which
represents an increase in net assets/equity, other than increases
relating to contributions from owners. Amounts collected as an agent
of the government or another government organisation or other third
parties will not give rise to an increase in net assets or revenue of the
agent. This is because the agent entity cannot control the use of, or
otherwise benefit from, the collected assets in the pursuit of its
objectives.
13. Where an entity incurs some cost in relation to revenue arising from a
non-exchange transaction, the revenue is the gross inflow of future
economic benefits or service potential, and any outflow of resources
is recognised as a cost of the transaction. For example, if a reporting
entity is required to pay delivery and installation costs in relation to
the transfer of an item of plant to it from another entity, those costs
are recognised separately from revenue arising from the transfer of
the item of plant. Delivery and installation costs are included in the
amount recognised as an asset, in accordance with ASLB 17,
„Property, Plant and Equipment‟.
Stipulations
14. Assets may be transferred with the expectation and/or understanding
that they will be used in a particular way and, therefore, that the
recipient entity will act or perform in a particular way. Where laws,
regulations, or binding arrangements with external parties impose
terms on the use of transferred assets by the recipient, these terms
are stipulations, as defined in this ASLB. A key feature of stipulations,
as defined in this Standard, is that an entity cannot impose a
stipulation on itself, whether directly or through an entity that it
controls. For example, a local body may issue an internal order that
the donations received from a particular source will be used for
building renovation only. This does not constitute a stipulation under
this standard.
15. Stipulations relating to a transferred asset may be either conditions or
restrictions. While conditions and restrictions may require an entity to
use or consume the future economic benefits or service potential

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embodied in an asset for a particular purpose (performance
obligation) on initial recognition, only conditions require that future
economic benefits or service potential be returned to the transferor in
the event that the stipulation is breached (return obligation).
16. Stipulations are enforceable through legal or administrative
processes. If a term in laws or regulations or other binding
arrangements is unenforceable, it is not a stipulation as defined by
this Standard. Constructive obligations do not arise from stipulations.
ASLB 19, ‘Provisions, Contingent Liabilities and Contingent Assets’
establishes requirements for the recognition and measurement of
constructive obligations.
Conditions on Transferred Assets
17. Conditions on transferred assets (hereafter referred to as conditions)
require that the entity either consume the future economic benefits or
service potential of the asset as specified, or return future economic
benefits or service potential to the transferor in the event that the
conditions are breached. Therefore, the recipient incurs a present
obligation to transfer future economic benefits or service potential to
third parties when it initially gains control of an asset subject to a
condition. This is because the recipient is unable to avoid the outflow
of resources as it is required to consume the future economic benefits
or service potential embodied in the transferred asset in the delivery
of particular goods or services to third parties, or else to return to the
transferor future economic benefits or service potential. Therefore,
when a recipient initially recognises an asset that is subject to a
condition, the recipient also incurs a liability.
18. As an administrative convenience, a transferred asset, or other future
economic benefits or service potential, may be effectively returned by
deducting the amount to be returned from other assets due to be
transferred for other purposes. The reporting entity will still recognise
the gross amounts in its financial statements, that is, the entity will
recognise a reduction in assets and liabilities for the return of the
asset under the terms of the breached condition, and will reflect the
recognition of assets, liabilities, and/or revenue for the new transfer.

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Restrictions on Transferred Assets
19. Restrictions on transferred assets (hereafter referred to as
restrictions) do not include a requirement that the transferred asset,
or other future economic benefits or service potential, is to be
returned to the transferor if the asset is not deployed as specified.
Therefore, gaining control of an asset subject to a restriction does not
impose on the recipient a present obligation to transfer future
economic benefits or service potential to third parties when control of
the asset is initially gained. Where a recipient is in breach of a
restriction, the transferor, or another party, may have the option of
seeking a penalty against the recipient, for example, through an
administrative process such as a directive from central or state
government, or otherwise. Such actions may result in the entity being
directed to fulfill the restriction or face a civil or criminal penalty for
defying the court, other tribunal or authority. Such a penalty is not
incurred as a result of acquiring the asset, but as a result of
breaching the restriction.
Substance over Form
20. In determining whether a stipulation is a condition or a restriction it is
necessary to consider the substance of the terms of the stipulation
and not merely its form. The mere specification that, for example, a
transferred asset is required to be consumed in providing goods and
services to third parties or be returned to the transferor is, in itself,
not sufficient to give rise to a liability when the entity gains control of
the asset.
21. In determining whether a stipulation is a condition or restriction, the
entity considers whether a requirement to return the asset or other
future economic benefits or service potential is enforceable, and
would be enforced by the transferor. If the transferor could not
enforce a requirement to return the asset or other future economic
benefits or service potential, the stipulation fails to meet the definition
of a condition, and will be considered a restriction. If past experience
with the transferor indicates that the transferor never enforces the
requirement to return the transferred asset or other future economic
benefits or service potential when breaches have occurred, then the
recipient entity may conclude that the stipulation has the form but not

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the substance of a condition, and is, therefore, a restriction. If the
entity has no experience with the transferor, or has not previously
breached stipulations that would prompt the transferor to decide
whether to enforce a return of the asset or other future economic
benefits or service potential, and it has no evidence to the contrary, it
would assume that the transferor would enforce the stipulation and,
therefore, the stipulation meets the definition of a condition.
22. The definition of a condition imposes on the recipient entity a
performance obligation – that is, the recipient is required to consume
the future economic benefits or service potential embedded in the
transferred asset as specified, or return the asset or other future
economic benefits or service potential to the transferor. To satisfy the
definition of a condition, the performance obligation will be one of
substance not merely form, and is required as a consequence of the
condition itself. A term in a transfer agreement that requires the entity
to perform an action that it has no alternative but to perform, may
lead the entity to conclude that the term is in substance neither a
condition nor a restriction. This is because, in these cases, the terms
of the transfer itself do not impose on the recipient entity a
performance obligation.
23. To satisfy the criteria for recognition as a liability, it is necessary that
an outflow of resources will be probable, and performance against the
condition is required and is able to be assessed. Therefore, a
condition will need to specify such matters as the nature or quantity
of the goods and services to be provided or the nature of assets to be
acquired as appropriate and, if relevant, the periods within which
performance is to occur. In addition, performance will need to be
monitored by, or on behalf of, the transferor on an ongoing basis.
This is particularly so where a stipulation provides for a proportionate
return of the equivalent value of the asset if the entity partially
performs the requirements of the condition, and the return obligation
has been enforced if significant failures to perform have occurred in
the past.
24. In some cases, an asset may be transferred subject to the stipulation
that it be returned to the transferor if a specified future event does not
occur. This may occur where, for example, a central/state
government provides funds to an entity subject to the stipulation that
the entity raise a matching contribution. In these cases, a return

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obligation does not arise until such time as it is expected that the
stipulation will be breached, and a liability is not recognised until the
recognition criteria have been satisfied.
25. However, recipients will need to consider whether these transfers are
in the nature of an advance receipt. In this Standard, advance receipt
refers to resources received prior to a taxable event or a transfer
arrangement becoming binding. Advance receipts give rise to an
asset and a present obligation because the transfer arrangement has
not yet become binding. Where such transfers are in the nature of an
exchange transaction, they will be dealt with in accordance with
ASLB 9, „Revenue from Exchange Transactions‟.
Taxes
26. Taxes are the major source of revenue for many local bodies. Taxes
are defined in paragraph 7 as economic benefits compulsorily paid or
payable to entities, in accordance with laws or regulation, established
to provide revenue to the local bodies, excluding fines or other
penalties imposed for breaches of laws or regulation. Non-
compulsory transfers to the entities such as donations and the
payment of fees are not taxes, although they may be the result of
non-exchange transactions. A local body levies taxation on
individuals and other entities, known as taxpayers, within its
jurisdiction by use of its powers conferred on it.
27. State/Central tax laws and regulations (a) establish a local body‟s
right to collect the tax, (b) identify the basis on which the tax is
calculated, and (c) establish procedures to administer the tax, that is,
procedures to calculate the tax receivable and ensure payment is
received. The taxpayer generally provides details and evidence of the
level of activity7 subject to tax, and the amount of tax receivable by
the entity is calculated. Arrangements for receipt of taxes vary widely
but are normally designed to ensure that the entity receives payments
on a regular basis without resorting to legal action. Tax laws are
usually rigorously enforced and often impose severe penalties on
individuals or other entities breaching the law.
28. Advance receipts, being amounts received in advance of the taxable
event, may also arise in respect of taxes.

7 The level of activity implies the nature and / or magnitude of activity.

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Initial Analysis of the Inflow of Resources from
Non-Exchange Transactions
29. An entity will recognise an asset arising from a non-exchange
transaction when it gains control of resources that meet the definition
of an asset and satisfy the recognition criteria. In certain
circumstances, such as when a creditor forgives a liability, a
decrease in the carrying amount of a previously recognised liability
may arise. In these cases, instead of recognising an asset, the entity
decreases the carrying amount of the liability. In some cases, gaining
control of the asset may also carry with it obligations that the entity
will recognise as a liability. Contributions from owners do not give rise
to revenue, so each type of transaction is analysed, and any
contributions from owners are accounted for separately. Consistent
with the approach set out in this Standard, entities will analyse non-
exchange transactions to determine which elements of general
purpose financial statements will be recognised as a result of the
transactions. The flow chart on the following page illustrates the
analytic process an entity undertakes when there is an inflow of
resources to determine whether revenue arises. This Standard
follows the structure of the flowchart. Requirements for the treatment
of transactions are set out in paragraphs 30-115.
Illustration of the Initial Analysis of Inflows of Resources 1

1. The flowchart is illustrative only, it does not take the place of the Standards. It is
provided as an aid to interpreting this ASLB.
2. In certain circumstances, such as when a creditor forgives a liability, a decrease in
the carrying amount of a previously recognised liability may arise. In these cases,
instead of recognising an asset, the entity decreases the carrying amount of the
liability.
3. In determining whether the entity has satisfied all of the present obligations, the
application of the definition of “conditions on a transferred asset”, and the criteria for
recognising a liability, are considered.

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Do not recognise an
Does the inflow give rise No
increase in an asset,
to an item that meets the consider disclosure.
definition of an asset? (Paragraph 36)
(Paragraph 30)

Yes
Does the inflow satisfy the Do not recognise an
No
increase in an asset,
criteria for recognition as
an asset?2 (Paragraph consider disclosures.
31) (Paragraph 36)

Yes
Does the inflow result Is the transaction a Refer to
No
from a contribution from Yes non-exchange other
owners? (Paragraphs 37) transaction? ASLBs

Yes Yes
Refer to other ASLBs
Recognise:
 An asset and revenue to
the extent that a liability is
Has the entity satisfied all of the No not also recognised; and
present obligations related to the  A liability to the extent that
inflow? (Paragraph 50-56)3 the present obligations
have not been satisfied.
Yes (Paragraph (Paragraphs
44-45)
Recognise an asset and
recognise revenue.
(Paragraph 44)

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Recognition of Assets
30. Asset is defined as resources controlled by an entity as a result of
past events, and from which future economic benefits or service
potential is expected to flow to the entity.
31. An inflow of resources from a non-exchange transaction, other
than services in-kind, that meets the definition of an asset
should be recognised as an asset when, and only when:
(a) It is probable that the future economic benefits or service
potential associated with the asset will flow to the entity;
and
(b) The fair value of the asset can be measured reliably 8
except for a few transactions that are to be measured at
nominal value of ₹ 1/- in accordance with this Standard.
Control of an Asset
32. The ability to exclude or regulate the access of others to the benefits
of an asset is an essential element of control that distinguishes an
entity‟s assets from those public goods that all entities have access to
and benefit from. In accordance with paragraph 98, entities may, but
are not required, to recognise services in-kind. For example, a local
body may have the authority of allotment of use of a city town hall to
specific entities based on established rules.
33. An announcement of an intention to transfer resources to an entity is
not of itself sufficient to identify resources as controlled by a
recipient. For example, if a public school were destroyed by a forest
fire and a government announced its intention to transfer funds to
rebuild the school, the school would not recognise an inflow of
resources (resources receivable) at the time of the announcement. In
circumstances where a transfer agreement is required before
resources can be transferred, a recipient entity will not identify
resources as controlled until such time as the agreement is binding,
because the recipient entity cannot exclude or regulate the access of

8 Information that is reliable is free from material errors and bias, and can be depended

on by users to faithfully represent that it purports to represent or could reasonably be
expected to represent.

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the transferor to the resources. In many instances, the entity will need
to establish enforceability of its control of resources before it can
recognise an asset. If an entity does not have an enforceable claim to
resources, it cannot exclude or regulate the transferor‟s access to
those resources.
Past Event
34. Local bodies normally obtain assets from governments, other entities
including taxpayers, or by purchasing or producing them. Therefore,
the past event that gives rise to control of an asset may be a
purchase, a taxable event, or a transfer. Transactions or events
expected to occur in the future do not in themselves give rise to
assets – hence for example, an intention to levy taxation is not a past
event that gives rise to an asset in the form of a claim against a
taxpayer.
Probable Inflow of Resources
35. An inflow of resources is “probable” when the inflow is more likely
than not to occur. The entity bases this determination on its past
experience with similar types of flows of resources and its
expectations regarding the taxpayer or transferor. For example,
where (a) a government agrees to transfer funds to a local body
(reporting entity), (b) the agreement is binding, and (c) the
government has a history of transferring agreed resources, it is
probable that the inflow will occur, notwithstanding that the funds
have not been transferred at the reporting date.
Contingent Assets
36. An item that possesses the essential characteristics of an asset, but
fails to satisfy the criteria for recognition may warrant disclosure in
the notes as a contingent asset to be dealt with in ASLB 19,
„Provisions, Contingent Liabilities and Contingent Assets‟9.
Contributions from Owners
37. For a transaction to qualify as a contribution from owners, it will be
necessary to satisfy the characteristics identified in the definition as

9 See paragraph 104 of this ASLB for example of contingent asset under non-exchange

transaction.

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provided in this Standard. In determining whether a transaction
satisfies the definition of a contribution from owners, the substance
rather than the form of the transaction is considered. If, despite the
form of the transaction, the substance is clearly that of a loan or
another kind of liability, or revenue, the entity recognises it as such
and makes an appropriate disclosure in the notes to the general
purpose financial statements, if material. For example, if a transaction
purports to be a contribution from owners, but specifies that the
reporting entity will pay fixed distributions to the transferor, with a
return of the transferor‟s investment at a specified future time, the
transaction is more characteristic of a loan. For contractual
arrangements, an entity also considers the guidance on „Financial
Instruments’10 when distinguishing liabilities from contributions from
owners.
38-41. [Refer to Appendix 1]
Measurement of Assets on Initial Recognition
42. An asset acquired through a non-exchange transaction should
initially be measured at its fair value as at the date of acquisition
except non-monetary transfers (transfer of tangible/intangible
assets) that are accounted in accordance with paragraph 43.
43. Non-monetary transfers (transfer of tangible/intangible assets) such
as „Inventories‟, „Investment Property‟, „Property, Plant and
Equipment‟ and „Intangible Asset‟, acquired through non-exchange
transaction should initially be measured at nominal value of Re. 1/-.
Recognition of Revenue from Non-Exchange
Transactions
44. An inflow of resources from a non-exchange transaction
recognised as an asset should be recognised as revenue, except
to the extent that a liability is also recognised in respect of the
same inflow.
45. As an entity satisfies a present obligation recognised as a
liability in respect of an inflow of resources from a non-exchange

10 The guidance with regard to financial instruments may be obtained from other
corresponding pronouncements as per the hierarchy prescribed in paragraph 15 of the
ASLB 3, ‘Accounting Policies, Changes in Accounting Estimates, and Errors’.

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transaction recognised as an asset, it should reduce the carrying
amount of the liability recognised and recognise an amount of
revenue equal to that reduction.
46. When an entity recognises an increase in net assets as a result of a
non-exchange transaction, it recognises revenue. If it has recognised
a liability in respect of the inflow of resources arising from the non-
exchange transaction, when the liability is subsequently reduced,
because the taxable event occurs or a condition is satisfied, it
recognises revenue. If an inflow of resources satisfies the definition of
contributions from owners, it is not recognised as a liability or
revenue.
47. The timing of revenue recognition is determined by the nature of the
conditions and their settlement. For example, if a condition specifies
that the entity is to provide goods or services to third parties, or return
unused funds to the transferor, revenue is recognised as goods or
services are provided.

Measurement of Revenue from Non-Exchange
Transactions
48. Revenue from non-exchange transactions should be measured
at the amount of the increase in net assets recognised by the
entity.
49. When, as a result of a non-exchange transaction, an entity
recognises an asset, it also recognises revenue equivalent to the
amount of the asset measured in accordance with paragraph 42,
unless it is also required to recognise a liability. Where a liability is
required to be recognised it will be measured in accordance with the
requirements of paragraph 57, and the amount of the increase in net
assets, if any, will be recognised as revenue. When a liability is
subsequently reduced, because the taxable event occurs, or a
condition is satisfied, the amount of the reduction in the liability will
be recognised as revenue.

Present Obligations Recognised as Liabilities
50. A present obligation arising from a non-exchange transaction
that meets the definition of a liability should be recognised as a

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liability when, and only when:
(a) It is probable that an outflow of resources embodying
future economic benefits or service potential will be
required to settle the obligation; and
(b) A reliable estimate can be made of the amount of the
obligation.
Present Obligation
51. A present obligation is a duty to act or perform in a certain way and
may give rise to a liability in respect of any non-exchange transaction.
Present obligations may be imposed by stipulations in laws or
regulations or binding arrangements establishing the basis of
transfers. They may also arise from the normal operating
environment, such as the recognition of advance receipts.
52. In many instances, taxes are levied and assets are transferred to
entities in non-exchange transactions pursuant to laws, regulation or
other binding arrangements that impose stipulations that they be
used for particular purposes. For example:
(a) Taxes, the use of which is limited by laws or regulations to
specified purposes;
(b) Transfers, established by a binding arrangement that includes
conditions:
(i) From central governments to local bodies;
(ii) From state governments to local bodies;
(iii) From local bodies/other entity to other local bodies;
(iv) To governmental agencies that are created by laws or
regulation to perform specific functions with
operational autonomy, such as statutory authorities or
regional boards or authorities; and
(v) From donor agencies to local bodies.
53. In the normal course of operations, a reporting entity may accept
resources prior to a taxable event occurring. In such circumstances, a
liability of an amount equal to the amount of the advance receipt is
recognised until the taxable event occurs.

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54. If a reporting entity receives resources prior to the existence of a
binding transfer arrangement, it recognises a liability for an advance
receipt until such time as the arrangement becomes binding.
Conditions on a Transferred Asset
55. Conditions on a transferred asset give rise to a present
obligation on initial recognition that will be recognised in
accordance with paragraph 50.
56. Stipulations are defined in paragraph 7. Paragraphs 14-25 provide
guidance on determining whether a stipulation is a condition or a
restriction. An entity analyses any and all stipulations attached to an
inflow of resources, to determine whether those stipulations impose
conditions or restrictions.
Measurement of Liabilities on Initial Recognition
57. The amount recognised as a liability should be the best estimate
of the amount required to settle the present obligation at the
reporting date.
58. The estimate takes account of the risks and uncertainties that
surround the events causing the liability to be recognised in
accordance with the principles contained in ASLB 19, „Provisions,
Contingent Liabilities and Contingent Assets‟.

Taxes
59. An entity should recognise an asset in respect of taxes when the
taxable event occurs and the asset recognition criteria are met.
60. Resources arising from taxes satisfy the definition of an asset when
the entity controls the resources as a result of a past event (the
taxable event) and expects to receive future economic benefits or
service potential from those resources. Resources arising from taxes
satisfy the criteria for recognition as an asset set out in paragraph 31.
The degree of probability attached to the inflow of resources is
determined on the basis of evidence available at the time of initial
recognition, which includes, but is not limited to, disclosure of the
taxable event by the taxpayer.
61. Taxation revenue arises only for the entity that imposes the tax, and

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not for other entities. For example, where the state government
imposes a tax that is collected by its local body, assets and revenue
accrue to the state government, not the local body.
62. Taxes do not satisfy the definition of contributions from owners,
because the payment of taxes does not give the taxpayers a right to
receive (a) distributions of future economic benefits or service
potential by the entity during its life, or (b) distribution of any excess
of assets over liabilities in the event of the local body being wound
up. Nor does the payment of taxes provide taxpayers with an
ownership right in the local body that can be sold, exchanged,
transferred or redeemed.
63. Taxes satisfy the definition of „non-exchange transaction‟ because the
taxpayer transfers resources to the entity, without receiving directly
any value in exchange. While the taxpayer may benefit from a range
of services provided by the local bodies, these are not provided
directly in exchange as consideration for the payment of taxes.
64. As noted in paragraph 52, some taxes are levied for specific
purposes. If the entity is required to recognise a liability in respect of
any conditions relating to assets recognised as a consequence of
specific purpose tax levies, it does not recognise revenue until the
condition is satisfied and the liability is reduced. However, in most
cases, taxes levied for specific purposes are not expected to give rise
to a liability because the specific purposes amount to restrictions not
conditions.
The Taxable Event
65. The reporting entity analyses the taxation law to determine what the
taxable event is for the various taxes levied. For example, taxable
event for property tax is the passing of the date on which the tax is
levied, or the period for which the tax is levied, if the tax is levied on a
periodic basis.
Advance Receipts of Taxes
66. Consistent with the definitions of „assets‟, „liabilities‟ and the
requirements of paragraph 59, resources for taxes received prior to
the occurrence of the taxable event are recognised as an asset and a
liability (advance receipts), because (a) the event that gives rise to

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the entity‟s entitlement to the taxes has not occurred, and (b) the
criteria for recognition of taxation revenue have not been satisfied
(see paragraph 59), notwithstanding that the entity has already
received an inflow of resources. Advance receipts in respect of taxes
are not fundamentally different from other advance receipts, so a
liability is recognised until the taxable event occurs. When the taxable
event occurs, the liability is discharged and revenue is recognised.
Measurement of Assets Arising from Taxation
Transactions
67. Paragraph 42 requires that assets arising from taxation transactions
be measured at their fair value as at the date of acquisition. Assets
arising from taxation transactions are measured at the best estimate
of the inflow of resources to the entity. Reporting entities will develop
accounting policies for the measurement of assets arising from
taxation transactions that conform with the requirements of paragraph
42. The accounting policies for estimating these assets will take
account of both the probability that the resources arising from
taxation transactions will flow to the entity, and the fair value of the
resultant assets.
68. Where there is a separation between the timing of the taxable event
and collection of taxes, entities may reliably measure assets arising
from taxation transactions by using, for example, statistical models
based on the history of collecting the particular tax in prior periods.
These models will include consideration of the timing of cash receipts
from taxpayers, declarations made by taxpayers and the relationship
of taxation receivable to other events in the economy. Measurement
models will also take account of other factors such as:
(a) The tax law allowing taxpayers a longer period to file returns
than the entity is permitted for publishing general purpose
financial statements;
(b) Taxpayers failing to pay tax on a timely basis;
(c) Valuing non-monetary assets for tax assessment purposes;
(d) Complexities in tax law requiring extended periods for
assessing taxes due from certain taxpayers;

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(e) The potential that the financial and political costs of rigorously
enforcing the tax laws and collecting all the taxes legally due
to the entity may outweigh the benefits received; and
(f) The tax law permitting taxpayers to defer payment of some
taxes.
69. Measuring assets and revenue arising from taxation transactions
using statistical models may result in the actual amount of assets and
revenue recognised being different from the amounts determined in
subsequent reporting periods as being due from taxpayers in respect
of the current reporting period. Revisions to estimates are made in
accordance with ASLB 3, „Accounting Policies, Changes in
Accounting Estimates and Errors‟.
70. In some cases, the assets arising from taxation transactions and the
related revenue cannot be reliably measured until some time after the
taxable event occurs. This may occur if a tax base is volatile and
reliable estimation is not possible. In many cases, the assets and
revenue may be recognised in the period subsequent to the
occurrence of the taxable event. However, there are exceptional
circumstances when several reporting periods will pass before a
taxable event results in an inflow of resources embodying future
economic benefits or service potential that meets the definition o f an
asset and satisfies the criteria for recognition as an asset. For
example, it may take several years to determine and reliably measure
the amount of a new tax because the authority to levy the tax might
get established well beyond the reporting period because of
underlying disputes on the validity of the tax itself. Consequently the
recognition criteria may not be satisfied until payment is received or
receivable.
Expenses Paid Through the Tax System and Tax
Expenditures
71. Taxation revenue should be determined at a gross amount. It
should not be reduced for expenses paid through the tax
system.
72. The local body uses the tax system as a convenient method of paying
to taxpayers benefits that would otherwise be paid using another

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payment method, such as writing a cheque, directly depositing the
amount in a taxpayer‟s bank account, or settling another account on
behalf of the taxpayer. For example, local body may pay part of
residents‟ health insurance premiums, to encourage the uptake of
such insurance, either by reducing the individual‟s tax liability, making
a payment by cheque or by paying an amount directly to the
insurance company. In these cases, the amount is payable
irrespective of whether the individual pays taxes. Consequently this
amount is an expense of the entity and should be recognised
separately in the statement of income and expenditure. Tax revenue
should be increased for the amount of any of these expenses paid
through the tax system.
73. Taxation revenue should not be grossed up for the amount of tax
expenditures.
74. Local body may use the tax system to encourage certain financial
behavior and discourage other behavior. For example, a local body
allows a rebate of 10% to tax payers who pay property tax before a
date as specified by the local body. These types of concessions are
available only to taxpayers. If an entity (including a natural person)
does not pay tax, it cannot access the concession. These types of
concessions are called tax expenditures. Tax expenditures are
foregone revenue, not expenses, and do not give rise to inflows or
outflows of resources – that is, they do not give rise to assets,
liabilities, revenue, or expenses of the taxing entity.
75. The key distinction between expenses paid through the tax system
and tax expenditures is that, for expenses paid through the tax
system, the amount is available to recipients irrespective of whether
they pay taxes, or use a particular mechanism to pay their taxes.
ASLB 1, „Presentation of Financial Statements‟, prohibits the
offsetting of items of revenue and expense unless permitted by
another Standard. The offsetting of tax revenue and expenses paid
through the tax system is not permitted.

Transfers
76. Subject to paragraph 98, an entity should recognise an asset in
respect of transfers when the transferred resources meet the
definition of an asset and satisfy the criteria for recognition as
an asset.

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77. Transfers include grants, debt forgiveness, fines, bequests, gifts,
donations and goods and services in-kind. All these items have the
common attribute that they transfer resources from one entity to
another without providing any value in exchange, and are not taxes
as defined in this Standard.
78. Transfers satisfy the definition of an asset when the entity controls
the resources as a result of a past event (the transfer), and expects
to receive future economic benefits or service potential from those
resources. Transfers satisfy the criteria for recognition as an asset
prescribed in paragraph 31. In certain circumstances, such as when a
creditor forgives a liability, a decrease in the carrying amount of a
previously recognised liability may arise. In these cases, instead of
recognising an asset as a result of the transfer, the entity decreases
the carrying amount of the liability.
79. An entity obtains control of transferred resources either when the
resources have been transferred to the entity, or the entity has an
enforceable claim against the transferor. Many arrangements to
transfer resources become binding on all parties before the transfer
of resources takes place. However, sometimes one entity promises to
transfer resources, but fails to do so. Consequently only when (a) a
claim is enforceable, and (b) the entity assesses that it is probable
that the inflow of resources will occur, assets, liabilities, and/or
revenue will be recognised. Until that time, the entity cannot exclude
or regulate the access of third parties to the benefits of the resources
proposed for transfer.
80. Transfers of resources that satisfy the definition of „contributions from
owners‟ will not give rise to revenue.
81. Transfers satisfy the definition of non-exchange transactions because
the transferor provides resources to the recipient entity without the
recipient entity providing any value directly in exchange. If an
agreement stipulates that the recipient entity is to provide some value
in exchange, the agreement is not a transfer agreement, but a
contract for an exchange transaction that should be accounted for
under ASLB 9, „Revenue from Exchange Transactions‟.
82. An entity analyses all stipulations contained in transfer agreements to
determine if it incurs a liability when it accepts transferred resources.

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Measurement of Transferred Assets
83. As required by paragraph 42, transferred assets are measured at
their fair value as at the date of acquisition except non-monetary
transfers ( transfer of tangible/intangible assets) that are recorded at
nominal value of Re. 1/-. Entities develop accounting policies for the
recognition and measurement of assets that are consistent with
ASLBs.
Debt Forgiveness and Assumption of Liabilities
84. Lenders will sometimes waive their right to collect a debt owed by an
entity, effectively canceling the debt. For example, Central
Government may cancel a loan owed by a local body. In such
circumstances, the local body recognises an increase in net assets
because a liability it previously recognised is extinguished.
85. Entities recognise revenue in respect of debt forgiveness when the
former debt no longer meets the definition of a liability or satisfies the
criteria for recognition as a liability, provided that the debt forgiveness
does not satisfy the definition of a contribution from owners.
86. Where a controlling entity forgives debt owed by a wholly owned
controlled entity, or assumes its liabilities, the transaction may be a
contribution from owners, as described in paragraphs 37–38.
87. Revenue arising from debt forgiveness is measured at the carrying
amount of the debt forgiven.
Fines
88. Fines are economic benefits or service potential received or
receivable by an entity, from an individual or other entity, as
determined by a statutory or other law enforcement body, as a
consequence of the individual or other entity breaching the
requirements of laws or regulations. In some cases, law enforcement
officials are able to impose fines on individuals considered to have
breached the law. In these cases, the individual will normally have
the choice of paying the fine, or going to court to defend the matter.
Where a defendant reaches an agreement with a prosecutor that
includes the payment of a penalty instead of being tried in court, the
payment is recognised as a fine.

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89. Fines normally require an individual /another entity to transfer a fixed
amount of cash to the entity, and do not impose on the entity any
obligations which may be recognised as a liability. As such, fines are
recognised as revenue when the receivable meets the definition of an
asset and satisfies the criteria for recognition as an asset set out in
paragraph 31. As noted in paragraph 12, where an entity collects
fines in the capacity of an agent, the fine will not be revenue of the
collecting entity. Assets arising from fines are measured at the best
estimate of the inflow of resources to the entity.
Bequests
90. A bequest is a transfer made according to the provisions of a
deceased person‟s will. The past event giving rise to the control of
resources embodying future economic benefits or service potential for
a bequest occurs when the entity has an enforceable claim, for
example on the death of the testator, or the granting of probate.
91. Bequests which satisfy the definition of an asset are recognised as
assets when it satisfies the recognition criteria as prescribed in
Paragraph 31. Determining the probability of an inflow of future
economic benefits or service potential may be problematic if a period
of time elapses between the death of the testator and the entity
receiving any assets. The entity will need to determine if the
deceased person‟s estate is sufficient to meet all claims on it, and
satisfy all bequests. If the will is disputed, this will also affect the
probability of assets flowing to the entity.
92. The bequeathed assets should be measured in accordance with the
paragraph 83.
Gifts and Donations, including Goods In-kind
93. Gifts and donations are voluntary transfers of assets including cash
or other monetary assets, goods in-kind, and services in-kind that one
entity makes to another, normally free from stipulations. The
transferor may be an entity or an individual. For gifts and donations of
cash or other monetary assets and goods in-kind, the past event
giving rise to the control of resources embodying future economic
benefits or service potential is normally the receipt of the gift or
donation. Recognition of gifts or donations of services in-kind are
addressed in paragraphs 98-103 below.

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94. Goods in-kind are tangible assets transferred to an entity in a non-
exchange transaction, without charge, but may be subject to
stipulations. External assistance provided by multilateral or bilateral
development organisations often includes a component of goods in-
kind.
95. Gifts and donations (other than services in-kind) are recognised as
assets and revenue when it satisfies the recognition criteria as
prescribed in paragraph 31. With gifts and donations, the making of
the gift or donation and the transfer of legal title are often
simultaneous, in such circumstances, there is no doubt as to the
future economic benefits flowing to the entity.
96. Goods in-kind are recognised as assets when the goods are
received, or there is a binding arrangement to receive the goods. If
goods in-kind are received without conditions attached, revenue is
recognised immediately. If conditions are attached, a liability is
recognised, which is reduced and revenue recognised as the
conditions are satisfied.
97. Paragraph 83 prescribes the measurement principle for gifts and
donations including goods in-kind.
Services In-kind
98. An entity may, but is not required to, recognise services in-kind
as revenue and as an asset.
99. Services in-kind are services provided by individuals to entities in a
non-exchange transaction. These services meet the definition of an
asset because the entity controls a resource from which future
economic benefits or service potential are expected to flow to the
entity. These assets are, however, immediately consumed, and a
transaction of equal value is also recognised to reflect the
consumption of these services in-kind. For example, a municipal
school that receives volunteer services from teachers‟ aides, the fair
value of which can be reliably measured, may recognise an increase
in an asset and revenue, and a decrease in an asset and an expense.
In many cases, the entity will recognise an expense for the
consumption of services in-kind. However, services in-kind may also
be utilised to construct an asset, in which case the amount

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recognised in respect of services in-kind is included in the cost of the
asset being constructed.
100. Local bodies may be recipients of services in-kind under voluntary or
non-voluntary schemes operated in the public interest, for example:
(a) Technical assistance from other governments or international
organisations;
(b) Persons convicted of offenses may be required to perform
community service for a local body;
(c) Municipal hospitals may receive the services of volunteers;
(d) Municipal schools may receive voluntary services from
parents as teachers‟ aides or as board members; and
(e) Local bodies may receive the services of volunteer fire
fighters.
101. Some services in-kind do not meet the definition of an asset because
the entity has insufficient control over the services provided. In other
circumstances, the entity may have control over the services in-kind,
but may not be able to measure them reliably, and thus they fail to
satisfy the criteria for recognition as an asset. Entities may, however,
be able to measure the fair value of certain services in-kind, such as
professional or other services in-kind that are otherwise readily
available in the national or international marketplace. When
determining the fair value of the types of services in-kind described in
paragraph 100, the entity may conclude that the value of the services
is not material. In many instances, services in-kind are rendered by
persons with little or no training, and are fundamentally different from
the services the entity would acquire if the services in-kind were not
available.
102. Due to the many uncertainties surrounding services in-kind, including
the ability to exercise control over the services, and measuring the
fair value of the services, this Standard does not require the
recognition of services in- kind. Paragraph 108, however, encourages
the disclosure of the nature and type of services in-kind received
during the reporting period. As for all disclosures, disclosures relating
to services in-kind are only made if they are material. For some
entities, the services provided by volunteers are not material in
amount, but may be material by nature.

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103. In developing an accounting policy addressing a class of services in-
kind, various factors would be considered, including the effects of
those services in-kind on the financial position, performance and
cash flows of the entity. The extent to which an entity is dependent on
a class of services in-kind to meet its objectives, may influence the
accounting policy an entity develops regarding the recognition of
assets. For example, an entity that is dependent on a class of
services in-kind to meet its objectives, may be more likely to
recognise those services in-kind that meet the definition of an asset
and satisfy the criteria for recognition. In determining whether to
recognise a class of services in-kind, the practices of similar entities
operating in a similar environment are also considered.
Pledges
104. Pledges are unenforceable undertakings to transfer assets to the
recipient entity. Pledges do not meet the definition of an asset
because the recipient entity is unable to control the access of the
transferor to the future economic benefits or service potential
embodied in the item pledged. Entities do not recognise pledged
items as assets or revenue. If the pledged item is subsequently
transferred to the recipient entity, it is recognised as a gift or
donation, in accordance with paragraphs 93–97 above. Pledges may
warrant disclosure as contingent assets under the requirements of
ASLB 19, „Provisions, Contingent Liabilities and Contingent Assets‟.
Advance Receipts of Transfers
105. Where an entity receives resources before a transfer arrangement
becomes binding, the resources are recognised as an asset when
they meet the definition of an asset and satisfy the criteria for
recognition as an asset. The entity will also recognise an advance
receipt liability if the transfer arrangement is not yet binding. Advance
receipts in respect of transfers are not fundamentally different from
other advance receipts, so a liability is recognised until the event that
makes the transfer arrangement binding occurs and all other
conditions under the agreement are fulfilled. When that event occurs
and all other conditions under the agreement are fulfilled, the liability
is discharged and revenue is recognised.
105A-B. [Refer to Appendix 1]

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Disclosures
106. An entity should disclose either on the face of, or in the notes to,
the general purpose financial statements:
(a) The amount of revenue from non-exchange transactions
recognised during the period by major classes showing
separately:
(i) Taxes, showing separately major classes of taxes;
and
(ii) Transfers, showing separately major classes of
transfer revenue.
(b) The amount of receivables recognised in respect of non-
exchange revenue;
(c) The amount of liabilities recognised in respect of
transferred assets subject to conditions;
(cA) [Refer to Appendix 1]
(d) ₹ The amount of assets recognised that are subject to
restrictions and the nature of those restrictions;
(e) The existence and amounts of any advance receipts in
respect of non-exchange transactions; and
(f) The amount of any liabilities forgiven.
107. An entity should disclose in the notes to the general purpose
financial statements:
(a) The accounting policies adopted for the recognition of
revenue from non-exchange transactions;
(b) For major classes of revenue from non-exchange
transactions, the basis on which the fair value of
inflowing resources was measured;
(c) For major classes of taxation revenue that the entity
cannot measure reliably during the period in which the
taxable event occurs, information about the nature of the
tax;

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(d) The nature and type of major classes of bequests, gifts,
and donations showing separately major classes of
goods in-kind received; and
(e) The nature and extent of grants received from the
government and other entities separately, recognised in
the financial statements, including grants of non-
monetary assets.
108. Entities are encouraged to disclose the nature and type of major
classes of services in-kind received, including those not recognised.
The extent to which an entity is dependent on a class of services in-
kind will determine the disclosures it makes in respect of that class.
109. The disclosures required by paragraphs 106 and 107 assist the
reporting entity to satisfy the objectives of financial reporting, as set
out in ASLB 1, „Presentation of Financial Statements‟, which is to
provide information useful for decision making, and to demonstrate
the accountability of the entity for the resources entrusted to it.
110. Disclosure of the major classes of revenue assists users to make
informed judgments about the entity‟s exposure to particular revenue
streams.
111. Conditions and restrictions impose limits on the use of assets, which
impacts the operations of the entity. Disclosure of (a) the amount of
liabilities recognised in respect of conditions, and (b) the amount of
assets subject to restrictions assists users in making judgments about
the ability of the entity to use its assets at its own discretion. Entities
are encouraged to disaggregate by class the information required to
be disclosed by paragraph 106(c).
112. Paragraph 106(e) requires entities to disclose the existence of
advance receipts in respect of non-exchange transactions. These
liabilities carry the risk that the entity will have to make a sacrifice of
future economic benefits or service potential if the taxable event does
not occur, or a transfer arrangement does not become binding.
Disclosure of these advance receipts assists users to make
judgements about the entity‟s future revenue and net asset position.
113. As noted in paragraph 68, in many cases an entity will be able to
reliably measure assets and revenue arising from taxation

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transactions, using, for example, statistical models. However, there
may be exceptional circumstances where an entity is unable to
reliably measure the assets and revenue arising until one or more
reporting periods has elapsed since the taxable event occurred. In
these cases, the entity makes disclosures about the nature of major
classes of taxation that cannot be reliably measured, and therefore
recognised, during the reporting period in which the taxable event
occurs. These disclosures assist users to make informed judgements
about the entity‟s future revenue and net asset position.
114. Paragraph 107(d) requires entities to make disclosures about the
nature and type of major classes of gifts, donations, and bequests it
has received. These inflows of resources are received at the
discretion of the transferor, which exposes the entity to the risk that,
in future periods, such sources of resources may change significantly.
Such disclosures assist users to make informed judgements about
the entity‟s future revenue and net asset position.
115. Where services in-kind meet the definition of an asset and satisfy the
criteria for recognition as an asset, entities may elect to recognise
these services in-kind and measure them at their fair value.
Paragraph 108 encourages an entity to make disclosures about the
nature and type of all services in-kind received, whether they are
recognised or not. Such disclosures may assist users to make
informed judgments about (a) the contribution made by such services
to the achievement of the entity‟s objectives during the reporting
period, and (b) the entity‟s dependence on such services for the
achievement of its objectives in the future.
116- 125. [Refer to Appendix 1]

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Implementation Guidance
This guidance accompanies, but is not part of ASLB 23.
Measurement, Recognition and Disclosure of Revenue
from Non- Exchange Transactions — Examples
Example 1: Property Tax (Paragraph 65)
1. A Local body levies a tax of one percent of the assessed value of all
property within its jurisdiction. The Local Body‟s reporting period is
April 1 to March 31. The tax is levied on April 30, with notices of
assessment being sent to property owners in April, and payment due
by May 31. If taxes are unpaid on that date, property owners incur
penalty interest rate payments of two percent per month of the
amount outstanding. The tax law permits the local body to seize and
sell a property to collect outstanding property taxes.
2. The local body controls a resource–property taxes receivable–when
the taxable event occurs, which is the passing of the date on which
the taxes are levied–April 30. The government recognises assets and
revenue in the general purpose financial statements of the reporting
period in which that date occurs. At this stage, the penalty is not
recognised.
Example 2: Grant received from Government for General
Purposes (Paragraphs 14 - 16, 76)
3. The central government (transferor) makes a grant of ₹ 10 lakhs to a
local body in a socio-economically deprived area. The local body is
required under its constitution to undertake various social programs;
however it has insufficient resources to undertake all of these
programs without assistance. There are no stipulations attached to
the grant. The Local Body is required to prepare and present audited
general purpose financial statements.
4. There are no stipulations attached to these grants, and no
performance obligation, so the transfers are recognised as assets
and revenue in the general purpose financial statements of the
reporting period in which they are received or receivable by the local
body.

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Example 3: Transfer with Stipulations that do not satisfy the
Definition of a Condition (Paragraphs 20 – 25)
5. The central government makes a cash transfer of ₹ 50 lakhs to a local
body‟s school specifying that it:
(i) increases the stock of school housing by an additional 10
units over and above any other planned increases; or
(ii) uses the cash transfer in other ways to support its school
housing objectives.
If neither of these stipulations is satisfied the recipient entity must
return the cash to the central government.
6. The local body recognises an increase in an asset (cash) and
revenue in the amount of ₹ 50 lakhs. The stipulations in the transfer
agreement are stated so broadly as to not impose on the recipient a
performance obligation–the performance obligation is imposed by the
operating mandate of the entity, not by the terms of the transfer.
Example 4: Transfer to a Municipal Education Institution with
Restrictions (Paragraphs 19 and 76)
7. The government (transferor) transfers 200 hectares of land in a major
city to a Municipal Education Institution (reporting entity) for the
establishment of a Municipal Education Institution campus. The
transfer agreement specifies that the land is to be used for a campus,
but does not specify that the land is to be returned if not used for a
campus.
8. The Municipal Education Institution recognises the land as an asset
in the balance sheet of the reporting period in which it obtains control
of that land. The land should be recognised at its nominal value of
Re. 1/-. The restriction does not meet the definition of a liability or
satisfy the criteria for recognition as a liability. Therefore, the
Municipal Education Institution recognises revenue in respect of the
land in the statement of income and expenditure of the reporting
period in which the land is recognised as an asset.

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Example 5: Grant to Local Body with Conditions (see paragraphs
17 - 18)
9. The government (transferor) grants ₹ 1,000 lakhs to a local body
(reporting entity) to be used to improve and maintain mass transit
systems. Specifically, the money is required to be used as follows: 50
percent for existing transport system modernisation, 50 percent for
new transport systems. Under the terms of the grant, the money can
only be used as stipulated and the local body is required to include a
note in its audited general purpose financial statements detailing how
the grant money was spent. The agreement requires the grant to be
spent as specified in the current year or be returned to the
government.
10. The local body recognises the grant money as an asset. The local
body also recognises a liability in respect of the condition attached to
the grant. As the local body satisfies the condition, that is, as it
makes authorised expenditures, it reduces the liability and recognises
revenue in the statement of income and expenditure of the reporting
period in which the liability is discharged.
Example 6: Debt Forgiveness (Paragraphs 84 - 87)
11. The government (transferor) lent a local body (reporting entity) ₹ 200
lakhs to enable the local body to build a water treatment plant. After a
change in policy, the government decides to forgive the loan. There
are no stipulations attached to the forgiveness of the loan. The
government writes to the local body and advises it of its decision; it
also encloses the loan documentation, which has been annotated to
the effect that the loan has been waived.
12. When it receives the letter and documentation from the government,
which communicates this decision, the local body de-recognises the
liability for the loan and recognises revenue in the statement of
income and expenditure of the reporting period in which the liability is
de-recognised.
Example 7: Proposed Bequest (Paragraphs 90 - 92)
13. A 66-year-old citizen (transferor) names the local body (reporting
entity) as the primary beneficiary in her will. This is communicated to
the local body. The citizen is unmarried and childless and has an
estate currently valued at ₹ 5,00,000.

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14. The local body does not recognise any asset or revenue in its
general purpose financial statements for the period in which the will is
made. The past event for a bequest is the death of the testator
(transferor), which has not occurred. In other words, the proposed
bequest can only be recognised on happening of the past event, i.e.,
the death of the transferor.
Example 8: Pledge – Television Appeal for Municipal Hospital
(Paragraph 104)
15. On the evening of March 31, 20X5 a local television station conducts
a fund raising appeal for a municipal hospital (reporting entity). The
annual reporting date of the municipal hospital is March 31.
Television viewers telephone or e-mail promising to send donations
of specified amounts of money. At the conclusion of the appeal, ₹ 20
lakhs has been pledged. The pledged donations are not binding on
those making the pledge. Experience with previous appeals indicates
approximately 75 percent of pledged donations will be made.
16. The municipal hospital does not recognise any amount in its general
purpose financial statements in respect of the pledges. The entity
does not control the resources related to the pledge because it
cannot exclude or regulate the access of the prospective transferors
to the economic benefits or service potential of the pledged
resources, therefore, it cannot recognise the asset or the related
revenue until the donation is binding on the donor.
Example 9: Fine (Paragraph 88 – 89)
17. A company is found guilty of polluting surroundings of municipal
limits. As a penalty it is required to clean up the pollution and to pay a
fine of ₹ 50 lakhs. The company is in sound financial condition and is
capable of paying the fine. The company has announced that it will
not appeal the case.
18. The local body (reporting entity) recognises a receivable and revenue
of ₹ 50 lakhs in the general purpose financial statements of the
reporting period in which the fine is imposed.
Example 10: External Assistance Recognised (Paragraph 76 - 82)
19. Local Body (reporting entity) enters into an external assistance
agreement with world bank which provides Local Body with

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development assistance grants to support Local Body‟s health
objectives over a two year period. The external assistance agreement
is binding on both parties. The agreement specifies the details of the
development assistance receivable by Local Body. Local Body
measures the fair value of the development assistance at ₹ 50 lakhs.
20. When the external assistance agreement becomes binding, Local
Body recognises an asset (a receivable) for the amount of ₹ 50 lakhs,
and revenue in the same amount. The resources meet the definition
of an asset and satisfy the recognition criteria when the agreement
becomes binding. There are no conditions attached to this agreement
that require the entity to recognise a liability.
Example 11: Revenue of Local Body (Paragraphs 76, 93 - 97)
21. Local Body relies on funding from a group of governments. The
governments have signed a formal agreement, which determines the
percentage of Local Body‟s approved budget that each government
will fund. Local Body can only use the funds to meet the expenses of
the budget year for which the funds are provided. Local Body‟s
financial year begins on April 1. Local Body‟s budget is approved in
the preceding December and the invoices are mailed out to the
individual governments ten days after the budget is approved. Some
governments pay before the start of the financial year and some
during the financial year. However, based on past experience, some
governments are very unlikely to pay what they owe, either during the
financial year or at any future time.
22. For the budget year 2009-10, the profile of amounts and timing of
payments was as follows:
(₹ Lakhs)
Budget approved December 24, 2008 55
Amount invoiced January 4, 2009 55
Transfers received as at March 31, 2009 15
Transfers received during 2009-10 38
Amount not received by March 31, 2010 and 2
unlikely to be received
23. In 2008-09, Local Body recognises an asset of ₹ 15 lakhs for the
amount of transfers received before the start of 2009-10, because it

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has control over an asset when the transfer is received and deposited
in its bank account. An equivalent ₹ 15 lakhs liability, revenue
received in advance, is recognised.
24. In 2009-10, Local Body recognises ₹ 53 lakhs of revenue from
transfers. In the notes to its general purpose financial statements, it
discloses that ₹ 55 lakhs was invoiced and an allowance for doubtful
debts of ₹ 2 lakhs was established.
Example 12: Disclosure of Services In-kind not Recognised
(Paragraphs 98 - 102, 108)
25. A municipal hospital‟s (reporting entity) accounting policies are to
recognise voluntary services received as assets and revenue when
they meet the definition of an asset and satisfy the criteria for
recognition as assets. The hospital enlists the services of volunteers
as part of an organised program. The principal aim of the program is
to expose volunteers to the hospital environment and to promote
nursing as a career. Volunteers must be at least sixteen years of age
and are initially required to make a six-month commitment to work
one four-hour morning or afternoon shift per week. The first shift for
each volunteer consists of a hospital orientation training session.
Many local high schools permit students to undertake this work as
part of their education program. Volunteers work under the direction
of a registered nurse and perform non-nursing duties such as visiting
patients and reading to patients. The municipal hospital does not pay
the volunteers nor would it engage employees to perform volunteers‟
work if volunteers were not available.
26. The hospital analyses the agreements it has with the volunteers and
concludes that, at least for a new volunteer‟s first six months, it has
sufficient control over the services to be provided by the volunteer to
satisfy the definition of control of an asset. The hospital also
concludes that it receives service potential from the volunteers,
satisfying the definition of an asset. However, it concludes that it
cannot reliably measure the fair value of the services provided by the
volunteers, because there are no equivalent paid positions either in
the hospital or in other health or community care facilities in the
region. The hospital does not recognise the services in-kind provided
by the volunteers. The hospital discloses the number of hours of

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service provided by volunteers during the reporting period and a
description of the services provided.

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Appendix 1
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies
(ASLB) 23 and the corresponding International Public Sector
Accounting Standard (IPSAS) 23, „Revenue from Non-Exchange
Transactions (Taxes and Transfers)’.
Comparison with IPSAS 23, ‘Revenue from Non-
exchange transactions (Taxes and Transfers)’
1. Different terminologies have been used in ASLB 23 as compared to
corresponding IPSAS 23, e.g., the terms „statement of income and
expenditure‟ and „entity combination‟ have been used in place of
„statement of financial performance‟ and „public sector combination‟
respectively.
2. The following paragraphs of IPSAS 23 have been deleted. In order to
maintain consistency with the corresponding IPSAS 23, the
paragraph numbers have been retained:
(I) Paragraph 4 of IPSAS 23 provides that Government Business
Enterprises (GBEs) should use IFRSs, has been deleted, as it
is not relevant for Local Bodies in India.
(II) Off-market portion of concessionary loans received would fall
under the category „exchange transactions‟ as per the
requirements of ASLB 9, ‘Revenue from Exchange
Transactions‟. Therefore, paragraphs 10-11 and 105A-B have
been deleted.
(III) Paragraphs 39-41 relating to exchange and non-exchange
components of a transaction have been deleted because
these may not be relevant as the exchange and non-
exchange transactions have been defined differently in ASLBs
than in IPSASs.
(IV) Paragraphs 116-123 pertaining to transitional provisions have
been deleted as a separate ASLB 33, „First-time Adoption of
ASLBs‟ has been issued that contains all transitional
provisions at one place.
(V) Paragraphs 124-125 pertaining to effective date have been

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deleted as ASLB 23 would become mandatory for Local
Bodies in a State from the date specified by the State
Government concerned.
3. The following paragraphs of IPSAS 23 have been amended to make
the same more relevant in the context of Local Bodies in India:
(I) The definitions of „contribution from owners‟, „exchange
transactions‟ and „non-exchange transactions‟ have been
modified and the definitions of „government‟ and „grants‟ have
been included. (paragraph 7)
(II) Criteria for recognition of assets has been modified. An
exception to measure fair value has been inserted in case of
transactons that are measured at Re. 1/- in accordance with
this Standard. (paragraph 31)
(III) Initial measurement of non-monetary transfer (transfer of
tangible/intangible assets) has been modified to measure the
same at nominal value of Re. 1/-. (paragraph 42 & 43)
(iv) The requirement to measure the liability at the present value
of the amount expected to be required to settle the obligation
where the time value of money is material, has been removed.
(paragraph 58)
(v) An additional disclosure of the nature and extent of grants
received from the government and other entities that are
recognised in the financial statements, in the notes to the
general purpose financial statements, has been included
(paragraph 107(e)).
4. Paragraph 3 of IPSAS 23 that pertained to applicability of IPSASs
has been deleted by the IPSASB from this Standard because a
separate document of IPSASB on „Applicability of IPSASs‟ now deals
with the same. However, the provisions pertaining to applicability of
ASLBs has been covered in the Standard itself in line with other
issued ASLBs.
5. Some examples of IPSAS 23 have been deleted/ included in ASLB
23, and some examples have been modified in light of Indian
conditions. (refer paragraphs 14, 32, 38, 61, 65, 70 & 74)
6. Consequential changes resulting from the above departures have
been made in ASLB 23.

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