Professional Documents
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Government Grants
Government Grants
Benefit accounted for in accordance with IAS 20 Related contingent assets and liabilities treated in accordance with IAS 37 Government grants are recognized in P/L account on a systematic basis over the periods in which, the entity recognizes as expenses, the related costs for which grants has been received.
Approach to recognize government grants a) Capital approach b) Income approach Capital approach: Government grants are financing device. They are not earned but incentives given Income approach Receipt other than from shareholders Rarely gratuitous entity earn through compliance. Cash basis allowed only if no basis existed for allocating a grants to periods other than in which it was received. Most costs or expenses related to government grants are readily ascertainable. Grants are recognized in profit and loss account in the same period as the relevant expenses. Government grants are compensation for expenses or losses already incurred or for the immediate financial support with no further related cost should be recognized in profit and loss when it becomes receivable(qualifies to receive it) disclose to ensure that its effects are clearly understood. Government grants related to assets including non monetary grants at fair value shall be presented in the balance sheet either by: Setting up the grant as deferred income Deducting the grant from carrying value of the assets
Government grant related to income are credited to income statement either Other income (Inappropriate to net off) Deducted from related expenses Government Grant: That becomes repayable shall be accounted for as change in accounting estimates. Income: First to unamortized deferred credit, then to profit and loss. Assets: Increasing the assets (Current Value) or reducing deferred income. (Assets may require possible impairment) Certain assistance are excluded from grants which cannot reasonably have a value placed upon them.(example free technology or marketing advice, provision of guarantees.)