Chapter 9 - Accounting for Government Grants

Question 1

What standard covers the accounting for government grants?

Answer 1

IAS 20

Question 2

What entities are included under the definition of government in IAS 20?

Answer 2

• Government, government agencies and similar bodies
• Local, national and international

Question 3

What is defined as government grants in IAS 20?

Answer 3

Government assistance is action by governments to provide economic benefits to one or more entities, usually in the form of cash, for a specific purpose

Question 4

If government assistance in provided indirectly to an entity by a general provision of infrastructure or general marketing advice, does this meet the definition of government assistance?

Answer 4

No

Question 5

If grants are provided that cannot reasonably have a value placed on them (e.g. free services by a government department), is this classified as a government grant under IAS 20?

Answer 5

No

Question 6

Is a government loan at a below market interest rate treated as a government grant under IAS 20?

Answer 6

Yes.

Benefit is measured at the inception of the loan and the difference between the cash received

Question 7

What is meant by grants related to assets?

Answer 7

Grants that relate specifically to the purchase or construction of long-term assets

Question 8

Under IAS 20, how should government grants be recognised ?

Answer 8

Recognised in income on a systematic basis, over the periods that relates to the related costs which they are intended to compensate.

Grant should not be recognised until reasonable assurance that grant will be received / compliance with conditions.

Question 9

Where a grant received is a non-monetary form (non-cash), how should this be measured under IAS 20?

Answer 9

Measure both the grant and asset at fair value

Question 10

When is immediate recognition of a grant appropriate under IAS 20?

Answer 10

If grant is given to provide immediate financial support, and no future related expenses are expected to be incurred

Question 11

Under IAS 20, what 2 alternatives are there for grants relating to assets?

Answer 11

1. Present the grant on the balance sheet as deferred income and systematically recognise it in P&L over the asset’s useful life
2. Deduct the grant when arriving at the cost of the asset

Question 12

How should grants related to income be recognised under IAS 20?

Answer 12

Recognised in profit and loss as other income or deducted from the related expense.

This should be matched to the period in which the entity recognised the related costs for which the grants are intended to compensate

Question 13

If a government grant becomes repayable (e.g. conditions were not met), how should this be accounted for?

Answer 13

As a change in accounting estimate in accordance with IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors)

Difference should be recorded to the current period

Question 14

What disclosures are required under IAS 20?

Answer 14

• Sufficient detail for user to under the impact that government grants have had on the entity’s financial statements
• Accounting policy and presentation method adopted
• A note regarding any benefit that the entity has received but not recognised, for example, from the provision of free services by the government
• Explanation of the existence of any unfulfilled conditions relating to recognised government assistance

Question 15

What 2 conditions should be considered firstly for whether to recognise a government grant?

Answer 15

• Has the entity complied with the conditions attached to the grant?
• Is there assurance that the grant will be received?