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| Reader Comments on :: Government Grants | |
| This might contravene with the opinion of other but please use your own professional judgement. Unlike BAS, the BAS for SMEs contains only one option for accounting for all government grants. As per para 24.4 of BAS for SMEs, an entity shall recognise government grants as follows: (a) A grant that does not impose specified future performance conditions on the recipient is recognised in income when the grant proceeds are receivable. (b) A grant that imposes specified future performance conditions on the recipient is recognised in income only when the performance conditions are met. (c) Grants received before the revenue recognition criteria are satisfied are recognised as a liability. Referring to the case, it seems entity had received some item of PPE in the form of government grants without any specified future performance conditions attached. If such is the case, the grant should have been recognized as income in the profit or loss of the period in which it become receivable (debit PPE and credit income from government grants). Since the grant will not be revoked (there are no future performance conditions), recognition is likely to be on the date on which the PPE was granted to the entity by government (see paragraph 24.4(a)). The PPE received from government is an asset that should be recognised in the financial statements in accordance with Section 17 Property, plant and equipment. Consequently if the entity had not recognized the transaction or event as per the BAS for SMEs in prior period and preparing its financial statements as per BAS for SMEs w.e.f 1st January 2014, the entity may in accordance with paragraph 35.8 have to adjusts its opening balances from 1 January 2013 (the date of transition to the IFRS for SMEs) in order to derecognize the Capital Reserve accumulated as a result of government grants before 1 January 2013 with a corresponding adjustment to retained earnings. Posted By: Tshechu Posted on: 2018-05-15 11:57:13 | |
| Thanks... i got it...thanks Posted By: kaydee Posted on: 2018-05-15 11:57:13 | |
| Government Grant standard provides the following two options for the recognition of grants: 1. Grant recognised in balance sheet as a liability and transferred to profit and loss account on a systemic basis based on the life of the asset. 2. Grant amount deducted from the value of the asset at the time of recognition and the asset is recognised at the net value. The entity can follow any of the above two options. If an entity chooses any of the option, they need to follow the same option for future as well. In the give case, from the facts mentioned, it seems that the grant was recognised in the balance sheet as a liability and amount equivalent to depreciation was being transferred to capital reserve. This treatment is not allowed as per BAS. Since, the company has recognised the assets at the gross value, they should follow option no. 1 stated above. In the given case, the useful life needs to be re-evaluated as per the requirement of BAS. If the useful life remains the same as previously envisaged, then the amount which has been transferred to capital reserve from grant needs to be transferred from capital reserve to retained earning. If the useful life of the asset changes, then the amount to be transferred to retained earning needs to be re-evaluated. Further, the changes needs to be routed through the opening reserves of the earliest period reported. It cannot be treated as deferred grant income. Hope the above clarifies. Posted By: Loknath Posted on: 2018-05-15 11:57:13 | |
| To, TWC, AASBB, The amount equivalent to depreciation on assets acquired out of capital grants had been reduced from grants and transferred to Capital Reserve when GAAP was followed (also based on MoF ciruclar). It was in contravention of Grant Standard which required such transfer to income statement. With implementation of BAS-SME, the future accounting can be done but what treatment should be given to the accumulated amount in capital reserve (the amount of grants reduced to the tune of depreciation on assets acquired of grants)? Should we transfer to retained earning or to deferred grant income. Please advise Posted By: kaydee Posted on: 2018-05-15 11:57:13 |
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