Government Assistance Flashcards
What are the 3 ways to present government assistance in connection with non-capital items?
The 3 alternatives for presentation of assistance are:\n<ul>\n \t<li>Show related expenses net of assistance, or</li>\n \t<li>Show the assistance as a deduction from aggregate expenses, or</li>\n \t<li>Show the assistance as revenue.</li>\n</ul>
How should government assistance towards current expenses or revenues be treated in the financial statements?
Government assistance towards current expenses or revenues should be included in the determination of net income for the period.
Reena Ltd. received a grant from Community Housing to hire a university student for the summer. Community Housing reimburses Reena Ltd. for 50% of the student’s salary. What are Reena’s options for treating the grant in the financial statements?
This reimbursement could either be netted against salary expense, as an adjustment to total expenses, or accounted as revenue.
How should a company account for government assistance related to expenses of future periods?
Where government assistance relates to expenses of future accounting periods, the appropriate amounts should be deferred and amortized to income as related expenses are incurred. The amount of government assistance deferred, the period of amortization, and the basis of amortization of the deferral should be disclosed.
The Ministry of transportation provided a $200,000 grant to a company in northern Ontario, for their research into transportation options for northern Ontario towns. They expect to incur expenses over the next 2 years. How should the grant of $200,000 be accounted for in the financial statements?
The best treatment would likely be to defer the grant and recognize it as expenses are incurred over the 2 years.
How should government assistance towards the acquisition of fixed assets be recognized in the financial statements?
Government assistance towards the acquisition of fixed assets should be either:\n<ul>\n \t<li>deducted from the related fixed assets with any depreciation calculated on the net amount; or</li>\n \t<li>deferred and amortized to income on the same basis as the related depreciable fixed assets are depreciated. The amount of the deferral and the basis of amortization should be disclosed.</li>\n</ul>
The government of Manitoba provided a $1 million dollar grant to Exco Ltd. to purchase a machine that costs $3 million dollars and is expected to last 5 years. How should Exco account for the $1 million dollar grant?
The grant could be deducted from the $3M and the net amount of $2M would be amortized over 5 years. Alternatively, the grant could be deferred (as a deferred credit) and amortized to income on the same basis as the amortization of the machine.
How should an entity account for a forgivable loan under IFRS?
Under IFRS a forgivable loan would be treated as a grant when there is “reasonable assurance” that the entity will meet the terms of forgiveness.
What is the definition of a forgivable loan?
A forgivable loan is a type of government assistance drawn up in the form of a loan, which is forgiven on condition that the “borrower” continues to meet certain requirements specified at the time it was granted.
Shaker Ltd. receives a yearly grant to employ staff in the summer, with the condition they hire at least 3 employees. This year Shaker hired 5 employees, but was informed by the government that the receipt of the grant would be delayed by 2 months. Shaker’s year end is next month. Would Shaker be allowed to accrue the grant in the current year’s financial statements?
Shaker should accrue the grant, as there is reasonable assurance it will be paid and Shaker has already met the requirement to hire at least 3 employees.
How should the repayment of a government grant be accounted for, due to a change in circumstances such as where the company is no longer meeting the grant conditions and have to repay the grant?
Because there are new circumstances that have led to a repayment, the accounting should be prospective treatment.
An asset was purchased 3 years ago for $100,000 and a grant of $40,000 was received. The asset is depreciated over 8 years. If at the beginning of year 4, the $40,000 grant has to be repaid, how is the $40,000 accounted for under both IFRS and ASPE?
Under IFRS, when a grant has to be repaid, the carrying amount of the asset is increased and the cumulative additional depreciation that would have been recognized in profit or loss to date in the absence of the grant, must be recognized <u>immediately</u> in profit or loss.\n\nIn this case, over the first 3 years, depreciation expense would have been reduced by $15,000 in total (i.e. $40,000/8 x 3 years).\n\nIf at the beginning of year 4, the $40,000 grant has to be repaid, under IFRS, the full amount by which depreciation was reduced due to the grant (i.e. $15,000), would have to be charged against year 4 income.\n\nIn contrast, under ASPE, the $40,000 would be added to the asset and the asset would be depreciated prospectively over the remaining useful life of the asset.
