8. Government Grants

Question 1

Government grants: Conditions when they should be recognized?

Answer 1

1. Will comply with conditions
2. Will receive grant

Question 2

Government grants: When is revenue recognized?

Answer 2

Over the periods the related costs are incurred

Question 3

Government grants: How can they be presented?

Answer 3

Either

1. Credit in P&L
2. Deducted from related expense

Question 4

Government grants: Capital grants: 2 methods of recognition

Answer 4

1. Netting-off method
2. Deferred income method

Question 5

Government grants: Capital grants: Netting-off method

Answer 5

1. Write off grant against
   Cost of non-current asset
2. Depreciate the reduced cost

Question 6

Government grants: Capital grant: Deferred income method

Answer 6

Treat grant as deferred income
So transfer portion to P&L annually over UL

(So offsetting higher depn on original cost)

Question 7

Government grants: Revenue grant: Repayment treatment (if conditions broken)

Answer 7

(Reduce deferred income)

Recognize balance as expense

Question 8

Government grants: Capital grant: Repayment treatment (if conditions broken): Netting-off method

Answer 8

Increase carrying amount of asset by repayment amount
Recognize missed cumulative depn

Question 9

Government grants: Capital grant: Repayment treatment (of conditions broken): Deferred income method

Answer 9

Reduce D.E. by repayment amount

Recognize repayment balance immediately as P&L expense

Question 10

Government grants: Government Assistance: Treatment

e.g. free advice
provision of guarantees

Answer 10

Not quantified/recognized in FS

IF no practical way to place reasonable value on it

Question 11

Government grants: UK GAAP presentation: 2 options

Answer 11

1. Performance model
2. Accruals model

(On a class-by-class basis)

Question 12

Government grants: UK GAAP: Performance model: Performance-related conditions do apply

Answer 12

Recognized as income when conditions met

Question 13

Government grants: UK GAAP: Performance model: Performance-related conditions do not apply

Answer 13

Recognized when proceeds received/receivable

Question 14

Government grants: UK GAAP: Performance model: Received before income can be recognized

Answer 14

Liability

Question 15

Government grants: UK GAAP: Accruals model

Answer 15

Classified as relating to revenue of assets

Question 16

Government grants: UK GAAP: Treatment when relating to revenue: Future related costs

Answer 16

Over periods in which related costs incurred

Question 17

Government grants: UK GAAP: Treatment when relating to revenue: No future related costs

Answer 17

Recognized in period grant becomes receivable

Question 18

Government grants: UK GAAP: Treatment when relating to assets

Answer 18

Recognized as income over expected UL of asset

Any part of grant not recognized as income is recognized as deferred income
(Not offset against carrying amount of asset)