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Questions and Answers
How is government grant income earned recognized in the statement of profit or loss?
How is government grant income earned recognized in the statement of profit or loss?
- As a non-operating expense
- As a reduction of cost of goods sold
- As a reduction of operating expenses (correct)
- As a separate item of other income (correct)
What is the treatment of government grants related to income that are received but the associated conditions are not yet met?
What is the treatment of government grants related to income that are received but the associated conditions are not yet met?
- Recognized as an expense in the statement of profit or loss
- Not recognized in the financial statements
- Recognized as an asset in the statement of financial position
- Recognized as a liability in the statement of financial position (correct)
How is the amount of the grant income recognized as deferred income determined?
How is the amount of the grant income recognized as deferred income determined?
- The difference between the total grant amount received and the amount recognized as income (correct)
- The amount of grant income earned in the preceding period
- The amount of grant income earned in the current period
- The total grant amount received
What is the impact of recognizing government grant income earned as a reduction of operating expenses on the statement of profit or loss?
What is the impact of recognizing government grant income earned as a reduction of operating expenses on the statement of profit or loss?
What is the accounting standard that governs the treatment of government grants?
What is the accounting standard that governs the treatment of government grants?
What method is used to measure the value of a government loan received at a below-market interest rate?
What method is used to measure the value of a government loan received at a below-market interest rate?
What is the loan benefit or incentive in a government loan received at a below-market interest rate?
What is the loan benefit or incentive in a government loan received at a below-market interest rate?
How is the loan benefit or incentive recognized in the financial statements?
How is the loan benefit or incentive recognized in the financial statements?
Flashcards
Annual Grant Income
Annual Grant Income
Income of $5 million recognized in profit or loss each year.
Statement of Profit or Loss
Statement of Profit or Loss
Financial statement showing income and expenses for a period.
Depreciation Charges
Depreciation Charges
Allocation of asset cost over its useful life on income statement.
Government Grant Recognition
Government Grant Recognition
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Deferred Income
Deferred Income
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Below-Market Interest Rate Loans
Below-Market Interest Rate Loans
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Amortized Cost Method
Amortized Cost Method
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Loan Benefit or Incentive
Loan Benefit or Incentive
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Study Notes
Grant Income Recognition
- Annual grant income of $5 million recognized as income at the end of each reporting period.
- Grants relating to 20x3 are current liabilities, while those for the following 8 years are non-current.
- For 20x4, grants are current liabilities for the year, and the remaining 7 years are non-current.
Operating Expenses (Example)
- Depreciation charges: $30,000 (20x2 and 20x3)
- Government grant income earned: $(5,000) (20x2 and 20x3)
Statement of Financial Position (Example)
- Non-current asset:
- PPE (Equipment) at cost value: $300,000 (20x2 and 20x3)
- Accumulated depreciation: $(30,000) (20x2), $(60,000) (20x3)
- Carrying amount: $270,000 (20x2), $240,000 (20x3)
- Non-current liability:
- Deferred grant income: $40,000 (20x2), $35,000 (20x3)
- Current liability:
- Deferred grant income: $5,000 (20x2 and 20x3)
Grants Related to Income
- Grants related to income recognized in the period the associated conditions are met.
- Amounts received for grants with unmet conditions are deferred income.
Government Loans at Below-Market Interest Rate
- Government loans at below-market rates are recognized as financial liabilities.
- Measured using the amortized cost method, determined by IFRS 9 "Financial instruments".
- Difference between the liability's initial recognition value and proceeds represents a loan benefit/incentive.
- Incentive/benefit is recognized systematically over the periods in which the related expenses are recognized.
- Example: If a loan is for training, the benefit is recognized over the training period.
- Example: If a loan is a rescue measure, the benefit is recognized immediately.
- Example: If a loan finances a depreciable asset, the benefit is either deducted from the asset's cost or recognized as deferred grant income.
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