[one_half][/one_half] [one_half_last]What is government grant?

Government grant is the cash or asset given by government to help company if it fulfills the conditions set by government.

 

This may be categorized as:

Capital grants- grants which are made to contribute towards the acquisition of asset

Revenue grants- grants which are made for other purposes like paying wages.

 

When recognized?

A grant can be recognized in the FS when:

  1. entity complies with the condition set by government
  2. the grants will be received.
  3. [/one_half_last]  

    Usually we will use the deferred income method to reverse the deferred income over the useful life of asset.

    And this is based on “Accrual” concept or Matching principle.

     

    Disclosure:

    Accounting policy adopted, including method of presentation(net off or separate method?)

    Nature and extent of government grants recognised and other forms of assistance received

    (eg, buy a machine?)

    Unfulfilled conditions and other contingencies attached to recognised government assistance

    (eg, repayment?)

     

    Accounting treatment:

    Capital grant:

    2 treatments both acceptable in IAS but treatment 1 is banned in UK

    treatment1, (net off method)

    Step1: Decrease grant from NCA which becomes net cost

    DR cash

    CR non-current asset

     

    Step2: Depreciate the net cost

    DR I/S-depreciation expense

    CR accumulated depreciation

     

     

    treatment2, (separate method)

    Step1: Treat the grant separately

    DR cash

    CR deferred income

     

    Step2: Release deferred income matched with depreciation expense of asset:

    DR deferred income (over life of asset)

    CR I/S(revenue)

     

     

     

    Revenue grant

    Treatment

    DR cash

    CR deferred income

     

    And subsequently release the deferred income matched with expenses as it is occurred.