Classification of Grant

a. Grant related to asset

-qualifiying for the grant shall purchase, construct or otherwise acquire long term asset.
 Setting grant as deferred income
 Deducting the grant in arriving of the carrying amount of asset

*Subsidiray conditons; attached restricting the type, location of the asset or the periods during which
the asset is to be acquire or held.

b. Grant related to income

-grant other than related to asset.
 Grant is presented in the income statement, either separately or under the head of “other
income”
 Grant is deducted from the related expense.

*gov grant shall recognized as income on systematic basis over the period on which an entity
recognizes as expense the related costs for which the grant is intended to compensate.

*in other words, grant is taken to income when related cost is incurred.

Proforma

Cost of land/building Received Grant 1st year - *dr. deferred income (10/10
Divided by: useful life Divided by: useful life x received grant)
=Depreciation =income from gov grant Cr. Income from gov grant
*dr. cash 2nd year -*dr. deferred income (9/10 x
Cr. Deferred income received grant)
(received grant) Cr. Income from gov grant

*Grant related to depreciable asset shall be recognized as income over the periods and in proportion to
the depreciation of the related asset.

^^Dr. cash
Cr. Deferred income (cash received)
^^Dr. Building
Cr. Cash
^^Dr. depreciation
Cr. Accum Depreciation (cost of bldg / useful life)

^Dr. Deferred Grant income

Cr. Grant income (received grant / useful life)

*Grant related to non-depreciable asset requiring fulfillment of certain conditions shall be recognized as
income over the periods which bear the cost of meeting the conditions.
^^SYD (cost – residual value) x 10/useful life = depreciation expense
2nd year (cost – residual value0 9/ useful life) = D.E

*Gov grant that becomes recievable as compensation for expenses or losses already incurred or for the
purpose of giving immediate financial support to the entity with no further related shall be recognized as
income of the period in which it becomes recievable.