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    IAS 20 - Govt Grants

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    laayba
    The document summarizes the key guidance in IAS 20 on accounting for government grants. Some of the main points covered include: - Government grants should not be recognized until there is reasonable assurance the entity will comply with conditions and receive the grant. - Grants related to assets should be presented as deferred income or deducted from the carrying amount of the asset, and recognized as income over the useful life of the asset. - Grants related to income should be recognized as other income either separately or by deducting from related expenses. - If a grant is repaid, it should be accounted for prospectively as a change in estimate, by increasing the carrying amount of the asset or reducing deferred income

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    IAS 20 - Govt Grants

    Uploaded by

    laayba
    10 views13 pages
    The document summarizes the key guidance in IAS 20 on accounting for government grants. Some of the main points covered include: - Government grants should not be recognized until there is reasonable assurance the entity will comply with conditions and receive the grant. - Grants related to assets should be presented as deferred income or deducted from the carrying amount of the asset, and recognized as income over the useful life of the asset. - Grants related to income should be recognized as other income either separately or by deducting from related expenses. - If a grant is repaid, it should be accounted for prospectively as a change in estimate, by increasing the carrying amount of the asset or reducing deferred income

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    Fr acca 2023

    Original Title

    IAS 20_Govt Grants

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    The document summarizes the key guidance in IAS 20 on accounting for government grants. Some of the main points covered include: - Government grants should not be recognized until there is reasonable assurance the entity will comply with conditions and receive the grant. - Grants related to assets should be presented as deferred income or deducted from the carrying amount of the asset, and recognized as income over the useful life of the asset. - Grants related to income should be recognized as other income either separately or by deducting from related expenses. - If a grant is repaid, it should be accounted for prospectively as a change in estimate, by increasing the carrying amount of the asset or reducing deferred income

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    10 views13 pages

    IAS 20 - Govt Grants

    Uploaded by

    laayba
    The document summarizes the key guidance in IAS 20 on accounting for government grants. Some of the main points covered include: - Government grants should not be recognized until there is reasonable assurance the entity will comply with conditions and receive the grant. - Grants related to assets should be presented as deferred income or deducted from the carrying amount of the asset, and recognized as income over the useful life of the asset. - Grants related to income should be recognized as other income either separately or by deducting from related expenses. - If a grant is repaid, it should be accounted for prospectively as a change in estimate, by increasing the carrying amount of the asset or reducing deferred income

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    IAS 20 Government grants

    Applicability

    • The standard does not apply to following situations:

    – Accounting for Govt. grants in FS reflecting changes in prices

    – Government assistance given in the form of tax breaks

    – Government acting as a part-owner of entity


    Definitions

    • Government includes government agencies & similar other


    bodies whether local, national or international

    • Grant is the assistance provided by the Govt. in the form of


    transfers of resources to the entity in return for past or future
    compliance with certain conditions relating to operating
    activities of the entity
    When to recognise GG?
    An entity should not recognise government grants (including non-monetary
    grants at fair value) until it has reasonable assurance that:

    The entity will comply with any


    conditions attached to the grant

    The entity will actually receive the grant

    Any related contingency should be recognised under IAS 37, once


    the grant has been recognised.
    Accounting for GG
     To be recognised as income over the relevant periods to match them with
    related costs
     Grants should not be directly credited to equity
     Grants related to assets
    o Set up grant as a deferred income i.e. recognised as income over useful
    life of the asset or
    o Deduct the grant amount from carrying value of the asset
     Grants related to income
    o Separate credit in the SOPL or
    o Deduct from related expense
    Example

    A company receives a 20% grant towards the cost of a new item of


    machinery, which cost $100,000. The machinery has an expected life of
    four years and a nil residual value. The expected profits of the company,
    before accounting for depreciation on the new machine or the grant,
    amount to $50,000 per annum in each year of the machinery's life.

    Required:
    Account for GG per IAS 20.
    Answer
    Answer
    Repayment of grant
     If grant has to be repaid, it should be accounted for as change in
    accounting estimate i.e. prospectively

     Repayment of grant related to income


    – First applied to unamortised balance of deferred income & any
    excess taken as expense to SOPL

     Repayment of grant related to asset


    – Increase in carrying value of asset or reduce deferred income
    – Change in depreciation should be recognised immediately as
    expense
    Example Repayment of asset related grant
    Sonora Ltd installs solar panels on 1 January 2004 at a cost of $12 million and
    receives a grant of $8 million from the local government.

    During 20X6, the government finds out that Sonora has not complied with
    certain terms of the grant and therefore asks it to repay the grant. Sonora gives
    up and repays $8 million. It had deducted the grant from the carrying amount of
    the asset and charged depreciation at 10% under the straight-line method for
    two years.

    Required:

    Show the accounting treatment as per IAS 20.


    Answer
    The carrying value of the asset as on the date of repayment would be:
    Cost 12 million – Grant 8 million = Net cost 4 million

    Depreciation for 2 years will be = 0.8 million

    Carrying value = 3.2 million

    Depreciation on $12m (ignoring grant) = $2.4 million (for 2 years)


    Additional accumulated depreciation = $1.6 million ($2.4 – $0.8)
    Answer contd..

     Repayment of the grant of $8m


    Dr Asset $8m
    Cr Bank $8m

     Additional depreciation of $1.6m - charged in SOPL and credited to accumulated


    depreciation.

    Revised gross amount = $12m (4 + 8)


    Accumulated depreciation = $2.4m ($0.8 + $1.6)
    Revised carrying value = $9.6m
    Thank You!

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