Topic 10 IAS 20 Government grants Students notes PDF

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Topic 10: IAS 20 – Government grants IAS 20 ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT ASSISTANCE Definitions: Government Government, government agencies and similar bodies whether local, national or international

Government grants Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity.

Government assistance Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. Government assistance for the purpose of this standard does not include benefits provided only indirectly through action affecting general trading conditions.

General principles IAS 20 follows two general principles when determining the treatment of grants: Prudence: grants should not be recognised until the conditions for receipt have been complied with and there is reasonable assurance the grant will be received. Accruals: grants should be matched with the expenditure towards which they were intended to contribute.

Recognition – general principles A grant should not be recognised until there is reasonable assurance that: a) The entity will comply with the conditions attaching to them; and b) The grants will be received

Capital grants- accounting Statement of financial position Two methods of presentation in the financial statements of capital grants; a) Set up the grant as deferred income and recognise income on a systematic basis over the useful life of the asset b) Deduct the grant from the cost of the asset and recognise as part of the depreciation charge

Revenue grants- accounting Statement of profit or loss Government grants shall be recognised as income over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. Two presentation approaches are acceptable:

 

Present as a credit in the statement of profit or loss Present as a deduction from the related expense

Question 24

Star buys an item of plant for a total cost of £200,000. They applied for a government grant and, having complied with all relevant conditions, have just received £20,000 towards the cost of the plant. The useful economic life of the plant is estimated at ten years. Required: Prepare extracts from the statement of profit or loss and statement of financial position if Star adopts; A. deferred income approach B. off-set grant against asset approach

Answer Q24

Question 25 Gloria received a government grant towards purchasing a new building. The building has a useful life of 25 years and had a total cost of £250,000 on 1 July 20X5 and Gloria received a grant of £100,000 on the same date. Assuming Gloria uses the deferred income method for government grants, what is the total impact on the statement of profit or loss for the year ended 30 June 20X6 and what is the value of the non-current asset as at 30 June 20X6? A. B. C. D.

SPL £6,000 expenses, Asset value £240,000 SPL £6,000 expenses, Asset value £144,000 SPL £10,000 expense, Asset Value £240,000 SPL £10,000 expenses, Asset value £144,000

Question 26 Manny received a government grant of £10,000 for the purchase of a new property costing £80,000 on 1 April 20X5. The asset has a life of 10 years and Manny adopts the deferred income method permitted in IAS 20 Government Grants. What amounts would appear in the statement of financial position as at 31 March 20X6?

Deferred income Current liability

Deferred income non current liability

A

£1,000

£9,000

B

£1,000

£8,000

C

£700

£6,300

D

£700

£5,600...