Accounting for Government Grants

IAS 20 deals with

• Disclosure of government grants

• Government participation in the ownership of firms

• Tax benefits provided to a firm in relation to Government Grants

Government assistance includes

• Indirect help, such as improving local infrastructure.

• Imposing import tariffs.

• Direct action to provide economic benefits to qualifying firms.

In the case of the grants related to an asset, which of these accounting treatments is prescribed by IAS 20 to be presented in the Statement of Financial Position?

• Record the grant at the fair value in the first year and take it to income statement in the subsequent year.

• Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the asset.

• Take it to the income statement and disclose it as an exceptional item.

• Record the grant at nominal value in the first year and write it off in the subsequent year.

In case of a non-monetary grant, which of the following accounting treatment is prescribed be IAS 20?

• Record the asset at replacement cost and the grant at a nominal value.

• Record only the asset at the fair value; do not recognize the fair value of the grant.

• Record both the grant and the asset at fair value of the non-monetary asset.

• Record the grant at a value estimated by the management.

If grants relate to depreciable assets

• Recognised as equity in the periods in which the depreciation is charged.

• Credited immediately to Other income.

• They should not be recognised at all since the asset will have no value eventually.

• Recognised as income in the periods in which the depreciation is charged.

On the notification that a firm will receive a grant:

• An account receivable will be set up, and the grant will be recorded on an accruals basis.

• Any of above accounting treatment is acceptable.

• Do nothing until the cash arrives.

• An account receivable will be set up, but the grant will be recorded on a cash basis.

When a grant is given for immediate financial support, or as compensation for costs already incurred

• It should be capitalised and amortised over useful life.

• It should be capitalised, as there are no matching costs.

• One half is to be recognised in the current period while the other half is to be recognised in the next period.

• It should be recognised in the period it becomes receivable.

If part, or all, of a grant becomes repayable to the government then

• The firm should use that amount to set up a subsidiary.

• The repayment should first be matched against any remaining deferred income relating to the grant.

• An amount equal to repayment should be charged to statement of profit or loss.

• The repayment should first be shown as an expense.