Chapter 8 - government grants

Question 1

Capital grants

Answer 1

Government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets.’ e.g. money towards a machine.

Question 2

Revenue grants

Answer 2

Government grants other than those related to assets. Cover expenses e.g. money towards wages.

Question 3

Government grants should only be recognised when:

Answer 3

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

Question 4

Presentation of government grants:

Answer 4

• presented as a credit in the statement of profit or loss
• deducted from the related expense

Question 5

Accounting for revenue grants:

Answer 5

Must be recognised as income over the periods in which the related grant costs are occurred

• presented as a credit in the statement of profit or loss
• deducted from the related expense

Question 6

Accounting for capital grants

Answer 6

• 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 statement of profit or loss each year over the asset’s useful life, so offsetting the higher depreciation charge on the original cost.

Question 7

Repayment of grants - Revenue grants

Answer 7

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

Question 8

Repayment of grants netting off method

Answer 8

• 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 9

Accrual model - relating to revenue

Answer 9

• Grant income shall be recognised as income over the periods in which the related costs incurred
• If no future related costs, recognised as income in the period it becomes receivable

Question 10

Accrual model for grants related to asses

Answer 10

• 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

Question 11

Performance model

Answer 11

• no conditions - recognised when grant proceeds are received
• conditions - only recognised as income when conditions are met