GOVERNMENT GRANTS

Question 1

What are government grants?

Answer 1

Government grants are “assistance by government in the form of transfer of resources to an entity in return for part or future compliance with certain conditions relating to the operating activities of the entity. It is sometimes known as, SUBSIDY/SUBVENTION/PREMIUM.

Question 2

How and when are government grants recognized?

Answer 2

Government grants are recorded at FAIR VALUE, when there is reasonable assurance that:

a. the entity will COMPLY WITH CONDITIONS attaching to the grant
b. The grant will be received.

Question 3

T or F

Government grants are recognized on a cash basis.

Answer 3

False.

Question 4

What are the classification of government grants? How are these presented?

Answer 4

1. Grant related to asset - entity qualifying for the grant shall purchase/construct/acquire long term assets. It is presented EITHER between:
   a. Setting the grant as deferred income
   b. Deducting the grant in arriving at the carrying amount of the asset.
2. Grant related to income - grants other than those related to assets. It is presented EITHER between:
   a. Grant is presented in the income statement under “OTHER INCOME”
   b. The grant is deducted from the related expense.

Question 5

What PAS governs Government grants?

Answer 5

PAS 20.

Question 6

How shall government grants be recognized over time?

Answer 6

PAS 20 provides that grants in recognition of specific expenses shall be recognized as income over the period of the related expense.

Question 7

What is the entry upon receipt of government grant?

Answer 7

Debit Asset

Credit Deferred Grant Income

Question 8

What is the entry upon recognition of grant income?

Answer 8

Debit Deferred Grant Income

Credit Grant Income

Question 9

A government grant that becomes repayable because of noncompliance shall be accounted for as? What happens when the government grant becomes repayable?

Answer 9

A change in accounting estimate.

If the repayment is related to INCOME, the repayment shall first be applied to any unamortized deferred income, and the excess is recognized immediately as an expense.

If the repayment is related to an ASSET, the carrying amount of the asset shall be increased.

Question 10

When is a loan from the government considered a government grant?

Answer 10

PAS 20 provides that a government loan is treated as a government grant when the interest rate is NIL OR BELOW MARKET INTEREST RATE.

The benefit is measured as THE DIFFERENCE BETWEEN THE FACE AMOUNT AND THE PRESENT VALUE OF THE LOAN.

Question 11

What disclosures are REQUIRED about government grants?

Answer 11

1. The accounting policy adopted for said grant, including the method of presentation adopted in the FS
2. The nature and extent of government grant recognized in the FS and an indication of other forms of government assistance from which the entity has directly benefited.
3. Unfulfilled conditions and other contingencies attaching to the grant/assistance that has been recognized.

Question 12

T or F

It is REQUIRED to disclose the name of the government agency that gave the grant.

Answer 12

False, not required.

Question 13

A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs should be recognized as income when?

Answer 13

In the period it becomes receivable.

Question 14

Deferred grant income is classified as?

Answer 14

Partly current and noncurrent liability.