IAS 20- Government Grants and Disclosure of Government Assistance

Question 1

Scope

Answer 1

Excludes:

• excludes govt assistance provided in forms that impact taxable profit or tax libaility such as income tax holiday or investment tax credits.
• Doesn’t cover govt involvement in entity ownership.
• Govt grants related to agriculture in IAS41.

Question 2

Governement grants:

Answer 2

Assistance in form of resource transfer to entities in exchnage for compliance w/ certain conditions related to operating activities.

Excluded: not reasonably quantifiable and indistinguishable from normal trading.

Alternative terms: subsidies, subventions, or premiums.

Question 3

Forgivable loans

Answer 3

Loans for which lenders agree to waive repayment under prescribed conditions.

Question 4

When should govt grant be recognised?

Answer 4

When reasonable assurance that entity wil complywith attached conditions and that grant will be received.

Question 5

Treatment of forgivable loans:

Answer 5

Forgivable loans from the government are treated as grants when there is reasonable assurance of meeting the loan forgiveness terms.

Question 6

Treatment of Below-Market-Rate Government Loans

Answer 6

Benefit from a government loan at a below-market rate of interest is treated as a government grant and recognized accordingly.

Question 7

Recognition of Contingent Liabilities or Assets:

Answer 7

Once a government grant is recognized, any related contingent liability or asset is treated according to IAS 37.

Question 8

Systematic Recognition of Government Grants:

Answer 8

Government grants should be recognized in profit or loss over the periods matching the expenses they are intended to compensate.

Question 9

Approaches to Accounting for Government Grants

Answer 9

• The capital approach (recognizing grants outside profit or loss) and
• The income approach (recognizing grants in profit or loss over one or more periods).

Question 10

Presentation of Grants Related to Assets:

Answer 10

Can be presented in SOFP by setting up grant as deferred income or by deducting grant from carrying amt of asset.

Question 11

Presentation of Grants Related to Income:

Answer 11

SOPL either separately or under a general heading or deducted in reporting the related expense.

Question 12

Repayment of Government Grants:

Answer 12

Grants:Repayments related to income grants are applied first against any unamortized deferred credit and then recognized immediately in SOPL

Asset:recognized by increasing the carrying amount of the asset or reducing the deferred income balance, with any excess recognized immediately SOPL

Question 13

What is not a government grant?

Answer 13

• free technical or marketing advice,
• provision of guarantees, and
• government procurement policies
• responsible for a portion of entity sales.

Question 14

What disclosures need to be made?

Answer 14

(a) The accounting policy for government grants, including presentation methods in financial statements.

(b) Nature and extent of government grants recognized in financial statements, and indication of other forms of direct government assistance.

(c) Unfulfilled conditions and other contingencies related to recognized government assistance.