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A government grant is aid from the government in exchange for compliance with requirements. Grants are recognized when reasonable assurance of compliance and receipt exist. Grants compensate related expenses over periods, and unspent portions are deferred income or deducted from assets. Grants for past losses or expenses are income when receivable. Asset-related grants are recognized as income proportionate to depreciation, while grants subject to conditions parallel satisfying restrictions.

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20 views

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A government grant is aid from the government in exchange for compliance with requirements. Grants are recognized when reasonable assurance of compliance and receipt exist. Grants compensate related expenses over periods, and unspent portions are deferred income or deducted from assets. Grants for past losses or expenses are income when receivable. Asset-related grants are recognized as income proportionate to depreciation, while grants subject to conditions parallel satisfying restrictions.

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© © All Rights Reserved
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1. Define a government grant.

It is a government aid in the form of a transfer of resources to an entity in


exchange for partial or future compliance with specific requirements pertaining to
the entity's operational activities.
2. Explain the recognition and measurement of government grant.
Government grant shall be recognized when there is reasonable assurance that:
a) the entity will comply with the conditions attaching to the grant.
b) the grant will be received. Government grant shall not be recognized on a
cash basis as this is not consistent with generally accepted accounting
practice.
3. Explain accounting for grant in recognition of expenses.
Government grants are recognized in profit or loss on a systematic basis over the
periods in which the entity recognizes expenses for the related costs that the grants
are intended to compensate, which in the case of grants related to assets requires
setting up the grant as deferred income or deducting it from the carrying amount of
the asset.
4. Explain accounting for grant received as compensation for expenses or
losses already incurred.
A government grant that becomes receivable as money back for previously
incurred expenses or losses, or for the purpose of providing immediate financial
support to the entity with no further costs, is reported as income in the period in
which it becomes receivable.
5. Explain accounting for grant related to depreciable asset.
Grants associated to depreciable assets must be recorded as income over time
and in proportion to the related asset's depreciation.
6. Explain accounting for grant related to nondepreciable asset requiring
fulfillment of certain conditions.
Grants for nondepreciable assets that are subject to specified requirements must
be recorded as income throughout the periods that carry the expense of satisfying the
restrictions.
7. Explain the presentation of government grant related to asset.
It shall be presented in the statement of financial position in either of two ways:
a) By setting the grant as deferred income.
b) By deducting the grant in arriving at the carrying amount of the asset
8. Explain the presentation of government grant related to income.
Shall be presented as follows:
a) The grant is presented in the income statement, either separately or under
the general heading “other income”.
b) Alternatively, the grant is deducted from the related expense.
9. Define government assistance.
It is a government measure meant to offer an economic advantage to a certain
entity or group of companies that meet specified requirements.
10. What are the necessary disclosures related to government grant?
a) The accounting policy adopted for government grant including the method of
presentation adopted in the financial statements.
b) The nature and extent of government grant recognized in the financial
statements and an indication of other forms of government assistance from
which the entity has directly benefited.
c) Unfulfilled conditions and other contingencies attaching to government
assistance that has been recognized.

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