Government grants

Question 1

Grants related to income

Answer 1

To cover expenses like wages. Grant revenue is recognized as expenses incurred
“other income” or deduct from the expense

Other income:
dr cash
cr deferred govmt grant

Then
dr deferred govmt grant
cr other income

Question 2

Grants related to assets

Answer 2

To cover the purchase of an asset. Grant revenue is recognized over life of the asset. .
“other income” or deduct from assets carrying value

Other income: same as above

Deduct from carrying:

dr. cash
cr. PPE

Then Depreciation is calculated based on lower value of asset (cost of asset - grant / useful life).

Question 3

Government loans

Answer 3

A forgiven loan must meet criteria to be recognized.

Interest free loan - Calculate interest benefit using effective interest method