Head Name: Grant Income/Fund received

Sector: Not for profit

Client Name: XYZ-INCOME

Financial Sub Applicable Applicable laws Internal External Applicable Source

Statemen Head Accounting and regulations Authority Authority policy Documents
t Head Standard
Income Grant IAS-01: Income Tax Executive NGO Affairs Organisation FD-6-Budget
incom Presentatio Ordinance, Committee/Senior Bureau, policy, Donor Approval
e n of 1984; Value Management National Board required policy Fund approval
financial Added Tax and Team of Revenue letter, Fund
statements Supplementary (NBR), release letter,
IAS-20 : Duty Act, 2012; Financial Form-C, Bank
Accounting Foreign Reporting statement,
for Donations Council (FRC),
Government (Voluntary Institute of
Grants and Activities) Chartered
Disclosure Regulation Act, Accountants of
of 2016; Terms of Bangladesh
Government Reference-ToR (ICAB),
Assistance of NGOAB; Bangladesh
Guidelines for Bank, Donor
Foreign
Exchange
Transaction
Volume-I
 Accounting Standard

Applicable standard: IAS-01, IAS-20

IAS-01: Presentation of financial statements
IAS 1 Presentation of Financial Statements represents a basis of the whole IFRS reporting, as it sets overall requirements for
the presentation of financial statements, guidelines for their structure and minimum requirements for their content.
Financial statements
Purpose of the financial statements is to provide information about the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in making economic decisions.
The complete set of financial statements compliant with IFRS comprises 5 elements:
 a statement of financial position as at the end of the period
 a statement of comprehensive income for the period
 a statement of changes in equity for the period
 a statement of cash flows for the period
 Notes containing a summary of significant accounting policies and other explanatory information.
If some accounting policy is applied retrospectively, or some retrospective restatements or reclassifications were made, then
also a statement of financial position as at the beginning of the earliest comparative period shall be presented.
IAS 1 explains the general features of financial statements, such as fair presentation and compliance with IFRS, going concern,
accrual basis of accounting, materiality and aggregation, offsetting, frequency of reporting, comparative information and
consistency of presentation.
Structure and content
IAS 1 requires identification of the financial statements and distinguishing them from other information in the same
published document.
Every element of the financial statements shall contain the name of the reporting entity, the information whether the financial
statements are of an individual or of a group, the date of the reporting entity and period covered, the presentation currency
and the level of rounding (thousands, millions…).
IAS 1 lists the minimum content to be presented in the financial statements, except for the statement of cash flows (subject
to IAS 7). So let’s look at it in a detail.
Statement of financial position
Before significant amendments of IAS 1, this statement was simply called “balance sheet”, however, it was renamed.
IAS 1 requires presentation of classified statement of financial position where current assets or liabilities are separated from
non-current assets or liabilities. Basically, the asset or liability is current when it is expected to be recovered or settled within
12 months after the reporting period.
With regard to a minimum content, the following line items shall be presented:
ASSETS EQUITY AND LIABILITIES
Property, plant and equipment Issued capital and reserves attributable to owners of the
parent
Investment property
Intangible assets Non-controlling interests
Financial assets Financial Liabilities
Investments accounted for using equity method Provisions
Biological assets
 Inventories
Trade and other receivables Trade and other payables
Cash and cash equivalents
Totals of assets in accordance with IFRS 5 Non-current Totals of liabilities in accordance with IFRS 5 Non-current
assets Held for Sale and Discontinued Operations assets Held for Sale and Discontinued Operations
Current tax assets Current tax liabilities
Deferred tax assets Deferred tax liabilities

Further sub classifications of the line items shall be disclosed either directly in the statement of financial position or in the
notes, such as disaggregation of property, plant and equipment into classes, and similar. Also, certain information related to
the share capital, reserves and a few others shall be included in the statement of financial position, the statement of changes in
equity or in the notes.
IAS 1 does NOT prescribe the precise format of the statement of financial position. Instead, several formats are acceptable if
they fulfill all requirements outlined above.

Statement of comprehensive income

The statement of comprehensive income has 2 basic elements:
 Profit or loss for the period: here, all items of income and expenses must be recognized.
 Other comprehensive income: items recognized directly to equity or reserves, such as changes in revaluation surplus,
gains or losses from subsequent measurement of available-for-sale financial assets, etc.
As a minimum, the statement of comprehensive income must contain the following items:
PROFIT OR LOSS
 Revenue

Gains and losses arising from the derecognition of financial assets at amortized cost

Finance costs

Share of the profit or loss of associates and joint ventures accounted for using the equity method

Tax expense

Post-tax profit/gain or loss of operations or assets in accordance with IFRS 5 (Non-current assets Held for Sale and Discontinued
Operations)

Profit or loss

OTHER COMPREHENSIVE INCOME

Each component of other comprehensive income classified by nature

Share of the other comprehensive income of associates and joint ventures accounted for using equity method

Total comprehensive income

As opposed to US GAAP, IAS 1 prohibits to report any transaction or item as extraordinary items.

Profit or loss for the period, as well as total comprehensive income shall be both presented in allocation:
 attributable to non-controlling interests and
 attributable to owners of the parent.
The entity might choose to classify expenses recognized in profit or loss for the period by their nature or by their function.
IAS 1 requires disclosure of certain items separately, either in the statement of comprehensive income, or in the notes. These
items are as follows: write-downs of inventories and property, plant and equipment, their reversals, restructuring of activities
and reversals of related provisions, disposals of property, plant and equipment, disposals of investments, discontinuing
operations, litigation settlements and other reversals of provisions.
Statement of Changes in Equity
As a minimum, the statement of changes in equity must contain the following items:
 total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to
non-controlling interests
 the effect of retrospective application or restatement for each component of equity (if applicable)
 the reconciliation between the carrying amount at the beginning and the end of the period for each
component of equity. Here, the following changes shall be disclosed separately:
o those resulting from profit or loss

o resulting from other comprehensive income

o resulting from transactions with owners (contributions, distributions and changes in ownership)

Also, IAS 1 prescribes to present amount of dividends recognized as distributions and the related amount per share on the face
of the statement of changes in equity or in the notes.

Notes to the Financial Statements

The notes are meant to be the document accompanying numerical financial statements listed above. They should provide
additional information not contained in the numbers, the basis of preparation of the financial statements and some additional
information that might be relevant.
IAS 1 sets that the notes shall contain a statement of compliance with IFRS, summary of significant accounting policies applied,
supporting information for the numbers presented in the financial statements and other disclosures.
IAS-20: Accounting for Government Grants and Disclosure of Government Assistance
How to Account for Government Grants (IAS 20)

Almost every government supports certain companies or business by providing grants or other kind of assistance.

As this is clear benefit and advantage comparing with other companies without such an assistance, it should be properly
reported in the financial statements.

How?

Let’s explain the rules and then solve a simple example.

What do the rules say?

The most important standard dealing with government grants is IAS 20 Accounting for government grants and disclosure
of government assistance.
It’s quite an old standard – it was issued in 1983 with the effective date from 1 January 1984 and there were no significant
changes from that day.
The main objective of IAS 20 is to prescribe the accounting for and the disclosure of
 The government grants – simply speaking, these are the actual resources, whether monetary or non-monetary,
transferred to an entity by a government, in most cases upon completion of some conditions;
 The government assistance – these are other actions of the government designed to provide some economic benefit to
an entity, for example free marketing or business advices.

IAS 20 deals with almost all types of government grants, with the following exclusions:
 Government assistance in the form of tax reliefs (tax breaks, tax holidays, etc.),
  Grants related to agriculture under IAS 41;
 Grants in the financial statements that reflect the effect of changing prices and
 Government acting as a part-owner of the entity.

Before we dig a bit more in details, let me stress that you should never ever credit the receipt of any grant directly in equity.
This capital approach is not permitted in IFRS.
Instead, IFRS prescribe so-called “income approach” – to recognize grants as income over the relevant periods to match them
with the related expenditures or costs they should compensate.
Specific accounting treatment depends on the purpose of the grant received. An entity can receive a grant either for:
 Acquisition of an asset, or
 Reimbursement of costs.
Grant related to assets
If an entity receives the grant for acquisition of some assets, there are 2 options to present such grant in the financial
statements:
1. To present it as deferred income; or
2. To deduct the grant from the carrying amount of an asset acquired.
In the example below, I show you both options.
Grant related to income (reimbursement of expenditures)
Here, you need to differentiate between the grants for past costs (already incurred) or the grants for current or future
costs.
If the grant is provided to reimburse costs incurred in the past, then it is recognized immediately in profit or loss.
If the grant is provided to reimburse costs incurred or to be incurred at the present time or in the future, then the grant is
recognized in profit or loss in the periods when the costs are incurred.
From the presentation point of view, there are 2 options:
1. To present the grant income as a separate line item as “other income”, or
2. To deduct the grant income from the related expense.
Let me illustrate it on a short example:

Government grants – question:

ABC receives the following government grants in 20X2:
1. Grant of CU 40 000 to acquire a water cleaning station. The cost of the station was CU 100 000 and its useful life is 8
years. ABC acquired the station on 1 July 20X2 and recognized depreciation on a straight-line monthly basis.
2. Grant of CU 10 000 to cover the expenses for ecological measures during 20X2 – 20X5. ABC assumes to spend CU 3 000
in 20X2-20X5 and CU 2 000 in 20X6 (CU 14 000 in total).
3. Grant of CU 3 000 to cover the expenses for ecological measures made by ABC in 20X0-20X1.
Prepare the journal entries in the year ended 31 December 20X2.

Government grants – solution:

As there are 3 different grants, let’s solve them one by one.
Grant for a water cleaning station
This grant is a typical grant to acquire property, plant and equipment. As written above, we have 2 choices to present it:
Option #1: Deferred income
ABC can credit the grant to deferred income and amortize it over the useful life of a water cleaning station in order to match
the grant income with the relevant costs (in this case depreciation charges).
In 20X2, ABC recognizes CU 2 500 in profit or loss (calculated as the grant of CU 40 000 divided by 8 years times 6 months in
20X2 divided by 12 months in a year).
Our journal entries are:
Option #2: Deduction from an asset
ABC can deduct the grant amount to arrive at carrying amount of a water cleaning station. Then its recognition in profit or loss
is automatically reflected in depreciation charges.
As a result, the new carrying amount of a water cleaning station upon initial recognition is CU 60 000 (cost of CU 100 000 less
grant of CU 40 000) and the annual depreciation charge is CU 7 500 (CU 60 000 divided by 8) instead of CU 12 500 (CU 100
000 divided by 8). In the first year, it’s CU 3 750 (6 months only).
Our journal entries are:
Grant for ecological measures in 20X2-20X5
Apparently, the second grant is provided to reimburse the expenses for ecological measures in 20X2 to 20X5. In other words, it
is a grant for current and future expenses.
ABC needs to recognize the income from grant in the periods when relevant expenses are incurred.
In this example, we can calculate the portion recognized in P/L in 20X2 on a proportionate basis, i.e. assumed CU 3 000 in
20X2 divided by total assumed expenses of CU 14 000 times the grant of CU 10 000.
The credit entry goes in profit or loss, but here, ABC has a choice to present the grant income as a separate line item (that’s
easier) or to deduct it from the expenses.
The journal entries are:
Grant for ecological measures in 20X0-20X1
The third grand relates to the expenses that had already been incurred in the previous year’s 20X0 and 20X1.
As a result, the grant is recognized immediately in profit or loss.
The journal entry is:
 Applicable laws and Regulation

Income Tax Ordinance, 1984

Relevant Section: Section 2(20) (bbb), 19 (27), 44 (1), 6th Schedule, Part A-Para 2
Section 2(20) (bbb)
‘Company’ means a company as defined in [the Companies Act, 1913 (VII of 1913) or Company Act, 1994)], and include-
(bbb) any association or body incorporated by or under the laws of a country outside Bangladesh.

Section 19 (27)
Where an assessee, being a company, purchases directly or on hire one or more motor car or jeep and value of any motor car
or jeep exceeds ten percent of its [paid up capital together with reserve and accumulated profit], then fifty percent of the
amount that exceeds such ten percent of the [paid up capital together with reserve and accumulated profit] shall be deemed to
be the income of such assessee for that income year classifiable under the head ‘income from other sources’.
Impact of Section 19 (27) of Income Tax Ordinance on XYZ-INCOME in Bangladesh

According to the documents provided to us, the Registrar of Companies for England and Wales certifies that XYZ-INCOME was
incorporated under the Companies Act 1948 as a limited company on 21 st February 1966 under which XYZ-INCOME in
Bangladesh took NGOAB registration to implement project in Bangladesh.

By analyzing the above scenario, management of the XYZ-INCOME in Bangladesh should consider the impact of 19 (27) of ITO,
1984 when purchasing directly or hiring one or more motor car or jeep for the organisation or project to avoid additional tax
burden.

Section 44 (1)
Notwithstanding anything contained in this Ordinance, any income or class of income or the income of any person or class of
persons specified in Part A of the Sixth Schedule shall be exempt from the tax payable under this Ordinance, subject to the
limits, conditions and qualifications laid down therein and shall be excluded from the computation of total income under this
Ordinance.

6th Schedule, Part A-Para 2

Any voluntary contributions received by a religious or charitable institution and applicable solely to religious or charitable
purpose:
Provided that nothing contained in paragraph 1 or 2 shall operate to exempt from the provision of this Ordinance that part of
the total income of a private religious trust which does not ensure for the benefit of the public.

Value Added Tax and Supplementary Duty Act, 2012

Relevant section: Section 26 and First schedule: Exempted supplies or imports
Section-26: Exempted supplies, or exempted imports.-Notwithstanding anything contained in this Act, the following supplies
shall be exempted from VAT, namely:-
a) Any supply or import specified in the first schedule; or
b) Any supply relating to a right or option to receive an exempted supply.

First schedule Part two (Services exempted from value added tax)
2(f) such social development activities not conducted on commercial purpose

Foreign Donations (Voluntary Activities) Regulation Act, 2016

Terms of Reference-ToR of NGOAB