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Government Grant
MFRS 120 defines Government Grants as
the assistance provided by the government
in the form of transfer of resources to a
company in return for past or future
compliance with certain conditions relating
to the operating activities of the company.
They exclude those forms of government
assistance which cannot reasonably have a
value placed upon them and transactions
of the entity.
MFRS 120
Grants can be categorised into two
groups:
Government grant related to assets
Government grant related to income
Recognition of Grant
Government grants, including non-monetary
grants at fair value, shall not be recognized until
there is reasonable assurance that:
the entity will comply with the conditions
attaching to them; and
the grants will be received.
A government grant is not recognized until there is
reasonable assurance that the entity will comply
with the conditions attaching to it, and that the
grant will be received.
Categories of Grants
Grants related
to assets
Deferred
income
(Deferred
credits) or
Write off
against asset
Grants related to
income
Credit in income
statement or
Deduction against
related expense
30,000
Balance c/d
120,000
RM
Cash grant
150,000
150,000
150,000
1,000,000
200,000
800,000
Current liabilities
Deferred government grant income
30,000
Non-current liabilities
Deferred government grant income (120,000
-30,000)
90,000
850,000
Less: Accumulated
Depreciation
(RM850,000 x 20%)
170,000
680,000
Revocable/Repayable Grants
A government grant that has been revoked (cancel) or
becomes repayable should be treated as a revision of an
accounting estimate.
Treatment depends on how the repayment is made:
If repayment of grant is related to income
It should be applied first against any unamortised
deferred income.
Any excess should be recognised immediately as an
expense.
If repayment of grant is related to asset
It should be recorded by increasing the carrying amount
of the asset or reducing the deferred income balance by
the amount repayable.
The cumulative additional depreciation that would have
been recognised to date as an expense in the absence
of the grant should be recognised immediately as an
expense.
Government Assistance
Definition of government assistance:
Action by government designed to provide an
economic benefit specific to an entity or range of
entities qualifying under certain criteria
Does not include benefits provided only indirectly
through action affecting general trading conditions,
such as the provision of infrastructure in development
areas or the imposition of trading constraints on
competitors.
Not quantified and introduced into the financial
statements.
Examples of such assistance whose value cannot be
reasonably measured are technical or marketing
advice and provision of guarantees.
Disclosures
1. Accounting policy adopted for government grants,
including the methods of presentation adopted in the
financial statements
2. Nature and extent of government grants recognised in
the financial statements and other forms of government
assistance received
3. Unfulfilled conditions and other contingencies attached
to government assistance that has been recognised.