Chapter 8 - Government Grants

Question 1

When should government grants be recognised? (revenue grants)

Answer 1

Government grants should only be recognised when there is reasonable assurance that:

• the entity will comply with the conditions of the grant
• the entity will receive the grant

Question 2

How do you present a revenue grant?

Answer 2

• Present as a credit in the SPL; or

- deducted from the related expense

Question 3

How do you account for capital grants?

Answer 3

• Netting off method: write off the grant against the cost of the non-current asset and depreciate the reduced cost
• deferred income method: treat the grant as deferred income and transfer a portion to the SPL each year over the asset’s UL, so offsetting the higher depreciation charge on the original cost

Question 4

How do you repay revenue grants?

Answer 4

If the conditions of a grant are breached, it may need to be repaid

Reduce deferred income, if any, and recognise the balance of the repayment immediately as an expense

Question 5

How do you repay capital grants?

Answer 5

• Netting off method: Increase the carrying amount of the asset by the amount of the repayment and recognise any cumulative depreciation that should have been charged to the SPL
• Deferred income method: Reduce deferred income by the amount of the repayment and recognise the balance of the repayment immediately as an expense

Question 6

How do you account for government assistance?

Answer 6

Government assistance is not to be quantified and recognised in the financial statements if there is no practical way to place a reasonable value on it.

Examples of such assistance include:

• free technical/marketing advice
• provision of guarantees

Any indication of any forms of government assistance from which the entity has directly benefited should be disclosed

Question 7

How do you recognise a grant under the performance model?

Answer 7

Recognition depends on whether future performance-related conditions apply:

• no conditions: recognised when grant proceeds are received or receivable
• conditions: only recognised as income when conditions are met

Any grants received before income can be recognised will be recognised as a liability

Question 8

How do you recognise a grant under the accrual model?

Answer 8

Under this model, grants are classified as relating to revenue or assets

Revenue:
- The grant income shall be recognised as income over the period in which the related costs are incurred. If there are no future related costs, it should be recognised as income in the period it becomes receivable.

Assets:
- The grant income shall be recognised as income over the expected useful life of the asset. Any part of the grant not recognised as income should be recognised as deferred income and not offset against the carrying amount of the asset