Government Grant

Question 1

What is a government grant?

Answer 1

assistance by the government in the form of transfer of resources to an entity in return for past or future compliance with certain conditions relating to operating activities of the entity.

Question 2

What are the conditions for recognition of a government grant?

Answer 2

1. the entity will comply with the conditions
2. the entity will receive the grant

Question 3

How should they be recognised for depreciating assets?

Answer 3

The value of the grant should be depreciated with the asset in the same way either by.

Question 4

how should they be recognised for non-depreciating assets?

Answer 4

recognised over the assets life in the profit/Loss accounts

Question 5

What are the two presentation methods for grants relating to assets?

Answer 5

1. setting up the grant as deferred income.
2. netting off

Question 6

Explain the deferred income method.

Answer 6

recognise as its own line in deferred income in the SOFP

dr cash
cr deferred income

then take the grant over its life x/yrs= y

y will then be deducted from deferred income and recognised as income in the p/l

Question 7

explain the netting off method

Answer 7

Grant lowers the carrying amount of the assets and is recognised as a reduced p/l charge.

dr cash
cr CA of ppe

Question 8

What are grants relating to income and how can they be presented?

Answer 8

e.g to fund wages of employees

presented as ‘other income’ (credit in the p/l)

or deducted from the related expense