Module 5 Flashcards
Fair value government grants
Show grant as well
Deferred income so can’t recognise all in one
10000 asset bought with 2000 grant, 10 year life
Fixed asset 10000 B/S
Liability 2000 B/S
In P+L doesn’t depriciate, depreciation has to have grant over that year on top
1000/10 =1000
2000/10 =200
800 depreciation
Nominal value government grants
No income as don’t recognise the grant
E.g 2000 grant on 10000 asset
10 year life
B/S Fixed Asset 8000
P+L Exp deprecation 800
What is an accrual?
Received benefit but not invoiced/paid
Credit
What is accrued income?
Owed income, earned but not yet invoiced
Debit
What is deferred income?
Owes services
Invoiced/paid yet not done it
Credit
What is commitment accounting?
Alternative to accruals
Commonly public sector (fixed amount of income to spend over given period)
As soon as goods and services are ordered/contract entered it is treated as committees expenditure and will be deducted from budgets rather than waiting for invoice
Why is commitment accounting beneficial for public sector bodies?
Allows them to see how much of their budget has been committed and should help avoid orders with insufficient funds left to pay
What does government refer to?
Local, national and international governments and agencies e.g EU, world banks and U.K. governments and authorities
What is government assistance?
Action by government designed to benefit a specific business or range of businesses
What are government grants?
Form of assistance involving the transfer of resources (usually cash) to a business in return for past or future compliance with conditions relating to operating activities of the business
What are grants relating to assets?
Are grants towards capital expenditure made by the business
What are grants relating to income?
Other than those relating to assets and are normally related to expenses
What are forgivable loans?
Loans the lender undertakes to waive repayment of if certain conditions are met
Same treatment as gov grants
Grants should not be recognised until there is reasonable assurance that?
Entity will comply with conditions of the grant
Grant will be received
What are contingent liabilities?
Future liabilities that might occur in the future
Uncertainty so not included in NL or B/S
Income grants can be further classified into?
Relating to costs already incurred
Costs not yet incurred
Assets grants can be further classified into?
Cash received to be spent on assets
Assets received directly (non monetary)
Income grants for costs already incurred journal entry?
Dr Bank/Accrued income
Cr P+L other income
(No future costs so credit to p+l in period)
Journal entry for income grants costs not yet incurred?
Dr Bank
Cr Deferred income
Still owe performance of grant conditions
Grants relating to assets in B/S
Either credit grant to deferred income or deduction from total cost of asset (FA cost -grant (dep net amount)
Journal if asset credited directly?
Dr Bank/Accrued income
Cr Fixed asset cost
Record what when non-monetary (asset itself) grant received ?
Fair value of item as cost + value of grant
Dr Fixed asset-cost
Cr Deferred income
Journal entry to record amortisation of grants?
Dr deferred income
Cr P+L other income/relevant expense
When is a grant said to be amortised?
When it is released to the P+L
Income grants will be released to match against the costs they are intended to cover
