Gov. grants and investment properties

Question 1

What are the 2 general principles applied when determining the treatment of grants?

Answer 1

Prudence - the grant should not be recognised until the conditions for receipt have been complied with and there is reasonable assurance the grant will be received

Accruals - grants should be matched with the expenditure towards which they were intended to contribute

Question 2

How should a revenue grant be recognised?

Answer 2

If the grant is paid when evidence is produced that certain expenditure has been incurred, the grant should be matched with that expenditure

if the grant is paid on another basis, such as achievement of a non-financial objective such as the creation of a certain number of jobs, the grant should be matched with the identifiable costs of reaching that objective

Question 3

What are the 2 treatments for presentation of revenue grants?

Answer 3

1 - can be presented as a credit in the SPL

2 - can be deducted from the related expense

Question 4

What are the 2 possible treatments for capital grants?

Answer 4

1 - write off the grant against the cost of the NCA and depreciate the reduced cost

2 - treat the grant as a deferred credit and transfer a prtion to other income each year so offsetting the higher depn charge on the original cost

Question 5

What is the definition of an investment property as per IAS 40?

Answer 5

Land or a building held to earn rentals, or for capital appreciation, or both, rather than for use in the entity of for sale by the entity in the ordinary course of business

Question 6

For IAS 40 - investment properties, what are the 2 models for subsequent measurement?

Answer 6

1 - cost model

2 - fair value model

Question 7

What is the cost model for valuation of investment property?

Answer 7

The asset should be accounted for in line with the cost model laid out in IAS 16 PPE, however an entity that uses the cost model must disclose the fair value of its investment property

Question 8

What is the fair value model for investment property?

Answer 8

The asset is revalued to fair value at the end of each year. The gain or loss is shown directly in the SPL
No depreciation is charged on the asset