6 Government Grant Reviewer IN INTERMEDIATE ACCOUNTING PDF

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GOVERNMENT GRANT PAS 20PAS 20 ACCOUNTING FORGOVERNMENT GRANTS ANDDISCLOSURE OF GOVERNMENTASSISTANCEGovernment Grant (GG) u assistance by government in the form of transfer of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities o...

Description

GOVERNMENT GRANT PAS 20 PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT ASSISTANCE Government Grant (GG) u assistance by government in the form of transfer of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity u either monetary, or nonmonetary at fair value Government grant a.k.a. u Subsidy u Subvention u Premium Recognition and measurement u GG shall be recognized when there is reasonable assurance that : o the entity will comply with the conditions attaching to the grant o the grant will be received GG  not recognized on a cash basis ; not consistent with GAAP Classifications of government grant u Grant related to ASSET o Condition : An entity qualifying for the grant shall purchase, construct, acquire LONG-TERM ASSET u Grant related to INCOME o Residual definition o GG other than grant related to asset Accounting for Government Grant u GG shall be recognized as INCOME on a systematic basis over the periods in which an entity recognizes as expenses the related costs for which the grant is intended to compensate.

u The grant is taken to INCOME over one or more periods in the which the related cost is incurred. PAS 20 I. Grant in recognition of SPECIFIC EXPENSES shall be recognized as INCOME over the period of the related expense. II. Grant related to DEPRECIABLE ASSET shall be recognized as INCOME over the periods and in proportion to the depreciation of the related asset. III. Grant related to NONDEPRECIABLE ASSET requiring fulfillment of certain conditions shall be recognized as INCOME over the period which bear the cost of meeting the conditions. IV. 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 FURTHER RELATED COSTS shall be recognized as INCOME of the period in which it becomes receivable. PRESENTATION OF GOVERNMENT GRANT GG RELATED TO ASSET is presented in the Statement of Financial Position in either of 2 ways *including nonmonetary grant at FV By setting the By deducting the grant as deferred grant in arriving income at the carrying amount of the asset Cash Cash Equipment Deferred Grant Income

GG RELATED TO INCOME is

presented in the Income Statement as follows Either The grant is SEPARATELY or deducted from under the general the related expense heading “OTHER INCOME” REPAYMENT OF GOVERNMENT GRANT u A government grant that becomes repayable because of NONCOMPLIANCE with conditions shall be accounted for as a CHANGE IN ACCOUNTING ESTIMATE. Repayment of a grant related to INCOME Shall be applied first against any UNAMORTIZED DEFERRED INCOME and any excess shall be recognized immediately as an EXPENSE Deferred Grant Income → balance DGI Loss on repayment of grant Cash

Repayment of a grant related to an ASSET Shall be recorded by INCREASING the CARRYING AMOUNT of the asset The cumulative accumulated depreciation that would have been recognized to date in the absence of the grant shall be recognized as expense The carrying amount AFTER repayment of the grant must be the same whether the entity follows the DEFERRED INCOME APPROACH or the DEDUCTION FROM ASSET APPROACH. DEDUCTION DEFERRED FROM ASSET INCOME APPROACH APPROACH Deferred grant income Loss on repayment of grant Cash

PPE” account Cash

Depreciation Accumulated depreciation

Depreciation Accumulated depreciation

Carrying amount divided by remaining life

Depn on original amount + Depn on increased CA

GRANT OF INTEREST-FREE LOAN u A FORGIVABLE LOAN from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan. u The benefit of a government loan with a NIL or below-market rate of interest is treated as a government grant. u The benefit is measured as the difference between the face amount and the present value of the loan. Face value of the loan Less: PV of the loan Discount on note payable → also the Deferred Grant Income*

XX (XX) XX

*to be amortized over the term of the loan using the effective interest method Date

Interest expense = Grant Income

Date received 1st period interest incurred

Multiplied by int. rate to PV

Total must be equal to total of DONP *the last interest expense must be equal to the subsequen t year’s DONP balance

Discount on NP = Deferred Grant Income Beg. Bal of DONP Decreasin g subtracted to interest exp. Always equal to zero

Present value

Present Value Increasin g (PV add Interest expense) Always equal to Face value of NP

u The interest expense and grant income are adjusted at the SAME AMOUNT. u The interest expense and grant income each year MAY BE OFFSET against the other.

u In this case, the interest expense and grant income would be ZERO each year. GOVERNMENT ASSISTANCE u Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. u No value can reasonably be placed upon it. u Examples o Free technical and marketing advice o Provision of guarantee o Government procurement policy that is responsible for a portion of the entity’s sales. u It is NOT required to disclose o the name of the government agency that gave the grant o the date of sanction of the grant by such government agency and o the date when cash was received in case of monetary grant

******notes from the problem solving****** u Grant in recognition of SPECIFIC EXPENSES shall be recognized as INCOME over the period of the related expense. u If the problem is silent, use the Deferred income approach. u Note that the grant received may be more than (or less than) the expected expenses to be incurred. u Grant related to DEPRECIABLE ASSET shall be recognized as INCOME over the periods and in proportion to the depreciation of the related asset. u Grant related to NONDEPRECIABLE ASSET requiring fulfillment of certain conditions shall be recognized as INCOME over the period which

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bear the cost of meeting the conditions. 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 FURTHER RELATED COSTS shall be recognized as INCOME of the period in which it becomes receivable. residual value is ignored in reducing balance method of depreciation Be observant on which method of depreciation to use in accordance to the problem o Single-line basis;  (Cost-residual value)/useful time o Reducing balance  CA-(CA*%) Use the same method in computing for grant income as to what the depreciation method is used; if single-line in dep’n, then use single-line for DGI; if reducing balance, then use reducing balance for DGI...