Governments Plants And Investment Property Flashcards
(17 cards)
What are the main requirements of IAS 20?
Accounting requirements and disclosure requirements
IAS 20 governs the accounting for government grants and the disclosure of government assistance.
What is a government grant?
Sum of money given for a specific project or purpose
Grants can come from local, national, or international governments and agencies.
When should government grants be credited to the Statement of Comprehensive Income?
When there is reasonable assurance that the entity will comply with conditions and the grant will be received
Grants are recognized once conditions are satisfied.
What are the two methods for accounting treatment of grants relating to assets?
- Deferred income method
- Net method
What is the deferred income method for grants?
Grant set up as non-current liability – deferred government grants
Released to Statement of Comprehensive Income over the useful life of the asset.
What is the net method for accounting grants?
Grant deducted from the asset’s carrying amount
The net amount is then depreciated.
What are the controversy points surrounding IAS 20?
- Recognition – deferred income vs. net method
- Earnings management/manipulation
- Lack of alignment with other IFRS standards
What is the objective of IAS 40?
Prescribe accounting treatment for investment property and related disclosure requirements
Define investment property.
Property held to earn rentals or capital appreciation or both
This includes land, buildings, or parts of buildings.
What properties are NOT considered investment property?
- Owner-occupied property
- Property held for sale in normal course of business
- Property being constructed/developed for third party
What are the requirements to recognize an asset under IAS 40?
- Probable future economic benefits will flow from property to enterprise
- Cost of property can be reliably measured
What are the two measurement models after initial recognition of investment property?
- Fair value model
- Cost model
What does the fair value model entail?
Price received from selling an asset in an orderly transaction at the measurement date
Gains or losses from changes in fair value are included in profit or loss.
What disclosures are required by IAS 40?
- Whether fair value model or cost model is used
- Methods and significant assumptions for fair value
- Reconciliation between opening and closing carrying amounts
True or False: Depreciation is charged on investment property if the fair value model is adopted.
False
What are the key messages of IAS 20?
- Different treatment available for grants
- Calculation and journal entries
- Required disclosure in financial statements
What are the key messages of IAS 40?
- Investment property is held for investment potential
- Depreciation is inappropriate
- Two measurement methods after initial recognition
