Government Grants

Government grants exclude:

a) Grants covered by IAS 41 b) Problems in accounting of government grants in financial statement to reflect changes in price. c) Taxable profit or loss(tax holidays, investment tax credit, accelerated depreciation allowance reduce tax rates) d) Government participation in ownership of the equity. Government: Government, government agencies, and similar bodies. Government Assistance: Designed to provide an economic benefit to equity qualifying certain criteria (does not include benefits provided only indirectly through action affecting general trading condition. Example: provision of infrastructure development Government Grants: Government assistance in the form of resources to an entity in return for past or future compliance of certain conditions. 1. 2. 3. 4. Grants related to assets: Conditions purchase/ construct otherwise acquire long term assets and other conditions types, location, and use of assets to be acquired or held. Grants related to income( other than those related to assets) Forgivable loans: Lender undertakes to waive repayments under certain conditions Fair Value: Exchange of assets between knowledgeable and willing parties at an arms length. [Assistance may be to encourage an entity to embark on a course of action] Significance for financial statements extent to which the entity has benefited. Government grants including non monetary grants at fair value not to be recognized unless: 1. Entity will comply with the conditions attached 2. The grants will be received Receipt of grant in itself is not conclusive evidence. Manner how it is received is not affect recognition. Forgivable loans recognized when it is reasonable assured that entity will meet the condition. Benefit of government loan below market rate is treated as government grant.(Loan measured in accordance with IAS 39)

Benefit accounted for in accordance with IAS 20 Related contingent assets and liabilities treated in accordance with IAS 37 Government grants are recognized in P/L account on a systematic basis over the periods in which, the entity recognizes as expenses, the related costs for which grants has been received.

Approach to recognize government grants a) Capital approach b) Income approach Capital approach: Government grants are financing device. They are not earned but incentives given Income approach Receipt other than from shareholders Rarely gratuitous entity earn through compliance. Cash basis allowed only if no basis existed for allocating a grants to periods other than in which it was received. Most costs or expenses related to government grants are readily ascertainable. Grants are recognized in profit and loss account in the same period as the relevant expenses. Government grants are compensation for expenses or losses already incurred or for the immediate financial support with no further related cost should be recognized in profit and loss when it becomes receivable(qualifies to receive it) disclose to ensure that its effects are clearly understood. Government grants related to assets including non monetary grants at fair value shall be presented in the balance sheet either by: Setting up the grant as deferred income Deducting the grant from carrying value of the assets

Government grant related to income are credited to income statement either Other income (Inappropriate to net off) Deducted from related expenses Government Grant: That becomes repayable shall be accounted for as change in accounting estimates. Income: First to unamortized deferred credit, then to profit and loss. Assets: Increasing the assets (Current Value) or reducing deferred income. (Assets may require possible impairment) Certain assistance are excluded from grants which cannot reasonably have a value placed upon them.(example free technology or marketing advice, provision of guarantees.)

Policy adopted Nature and extent recognized Unfulfilled conditions.