PAS 20 Accounting for Government Grants and Disclosure of Government Assistance PDF

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PAS 20: Accounting for Government Grants and Disclosure of Government Assistance Saturday, 10 October 2020 8:05 AM PHILIPPINE ACCOUNTING STANDARDS 20 PAS 20 prescribes the accounting and disclosure of government grants and the disclosure of other forms of government assistance. PAS 20 does not apply...

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PAS 20: Ac Acco co counting unting for Gov overerernment nment Gran antsts an andd Disc Disclosure losure of Govern Government ment As Asssistance Saturday, 10 October 2020

8:05 AM

PHILIPPINE ACCOUNTING STANDARDS 20 • PAS 20 prescribes the accounting and disclosure of government grants and the disclosure of other forms of government assistance. • PAS 20 does not apply to: a. Accounting for government grants under hyperinflationary economies; b. Tax benefits such as tax holidays, investment tax credits, accelerated depreciation allowances, and reduced income tax rates; c. Government participation in the ownership of the entity; and d. Government grants covered by PAS 41 Agriculture DEFINITION • Government grants (also called subsidies, subventions, or premiums) are assistance received from the government in the form of transfers of resources in exchange for compliance with certain conditions. • EXAMPLES  Receipt of cash, land, or other non-cash assets from the government subject to compliance with certain conditions  Receipt of financial aid in case of loss from a calamity  Forgiveness of an existing loan from the government  Benefit of a government loan with below-market rate of interest • Government grants exclude government assistance whose value cannot be reasonably measured or cannot be distinguished from the entity’s normal trading transactions. • Government assistance are other actions of the government designed to provide some economic benefit to an entity • EXAMPLES  Tax benefits,  Free technical or marketing advice,  Provision of guarantees,  Government procurement policy that is responsible for a portion of the entity’s sales If significant, these are disclosed but NOT recognized as government grants • The following are NOT government assistance and therefore are neither disclosed nor recognized.  Public improvements that benefit the entire community.  Imposition of trading constraints on competitors  Infrastructure in development areas such as improvement to the general transport and communication network SIGNIFICANCE • These are the following reasons why the receipt of government assistance may be significant in the preparation of the financial statements;

1. If resources are received, an appropriate accounting method is necessary to account for that receipt; 2. The indication of the extent to which the entity has benefited from the assistance during the period improves the comparability of financial statements.

RECOGNITION • Government grants are recognized if there is reasonable assurance that: a. the attached conditions will be complied with; and b. the grants will be received The mere receipt of a grant is not a conclusive evidence that the attached condition has been or will be satisfied.

CLASSIFICATIONS of Gov't Grants ACCORDING TO ATTACHED CONDITION Grants related to ASSETS

Grants related to INCOME

DEFINITION

DEFINITION

• grants whose primary condition is that the recipient entity should purchase, construct or otherwise acquire long-term assets. • EXAMPLES:  Cash is received from the government with the condition that the amount should be used to acquire equipment.  Land is received from the government with the condition that a building should be constructed on it. PRESENTATION

• grants other than those related to assets.

PRESENTATION

• Gross presentation – the grant is presented as • Gross presentation – the grant is presented deferred income (liability); or separately or under a general heading such as “Other income”, or • Net presentation – the grant is deducted • Net presentation – the grant is deducted in when computing for the carrying amount of the asset reporting the related expense INITIAL MEASUREMENT • Monetary grants are measured at the a. amount of cash received; or b. the fair value of amount receivable; or c. carrying amount of loan payable to government for which repayment is forgiven; or ▪ A forgivable loan is a loan that the lender (government) waives repayment subject to certain conditions d. discount on loan payable to government at a below-market rate of interest. ▪ The benefit of this loan is measured as the difference between the initial carrying amount of the loan determined in accordance with PFRS 9 Financial instruments and the

proceeds received. • Non-monetary grants (e.g., land and other resources) are measured at the a. fair value of non-monetary asset received. b. alternatively, at nominal amount or zero, plus direct costs incurred in preparing the asset for its intended use. ACCOUNTING FOR GOVERNMENT GRANTS • Government grants are "recognized in profit or loss on a systematic basis over the periods in which the entity recognizes as expense the related costs for which the grants are intended to compensate".  Grants related to depreciable assets are "recognized in profit or loss on a systematic basis over the periods and in the proportions in which depreciation expense on those assets is recognized."  Grants related to non-depreciable assets are recognized in the profit or loss when the cost of fulfilling the attached condition are incurred. For example, a grant of land conditioned on the construction of a building on it is recognized over the periods that the constructed building is depreciated.  Grants received as financial aid for expenses or losses already incurred are recognized immediately in profit or loss when the grant becomes receivable (because the related costs have already been expensed) Recognizing government grants in profit or loss on a receipts/cash basis is prohibited, unless there is no allocation basis other than the one in which the grant is received. • The main concept in accounting for gov’t. grants is the MATCHING CONCEPT. It means to recognize grants as income over the relevant periods to match them with the related expenditures or costs they should compensate. REPAYMENT • A government grant that becomes repayable is accounted for as a change in accounting estimate that is treated prospectively under PAS 8. • The repayment of a grant related to income is deducted from the related deferred income balance, if any. Any excess is recognized immediately in profit or loss. • The repayment of a grant related to asset is treated as a reduction in the deferred income balance or an increase in the carrying amount of the asset. The cumulative additional depreciation that would have been recognized in the absence of the grant is recognized immediately in profit or loss. • Following the repayment, the entity may consider the possibility of impairment of the new carrying amount of the asset.

DISCLOSURES A. Accounting policy and method of presentation B. Nature and extent of government grants and other forms of government assistance from which the entity has directly benefited. C. Unfulfilled conditions and contingencies attached to the government grants. It is not required to disclose the name of the government agency that gave the grant along with the

date of sanction of the grant by such government agency and the date when cash was received in case of monetary grant....