PAS 20 Quiz: Accounting for Government Grants and Disclosure

Study Notes

PAS 20 – Accounting for Government Grants and Disclosure of Government Assistance

PAS 20 prescribes the accounting and disclosure of government grants and the disclosure of other forms of government assistance.

Exclusions from PAS 20

PAS 20 does not apply to:
Accounting for government grants under hyperinflationary economies, where hyperinflation is rapid, excessive, and out-of-control general price increases.
Tax benefits, such as: + Income tax holidays, a government incentive program that offers a tax reduction or elimination to businesses. + Investment tax credits, permits businesses to deduct a specified percentage of certain investment costs from their tax liability, in addition to the normal allowances for depreciation. + Accelerated depreciation allowances, a concentration of depreciation allowances in the early years of an asset's life. + Reduced income tax rates, a tax percentage that is low.
Government participation in the ownership of the entity.
Government grants covered by PAS 41 Agriculture.

Government Grants

Government grants are assistance received from the government in the form of transfers of resources in exchange for compliance with certain conditions.
Examples of government grants:
Receipt of cash, land, or other non-cash assets from the government subject to compliance with certain conditions.
Receipt of financial aid in case of loss from a calamity.
Forgiveness of an existing loan from the government.
Benefit of a government loan with below-market rate of interest.
Only government assistance that meets the asset recognition criteria are recognized as government grants.
Government grants exclude government assistance whose value cannot be reasonably measured or cannot be distinguished from the entity's normal trading transactions.

Forms of Government Assistance

The following are forms of government assistance but are not government grants:
Tax benefits, generally refer to any tax law that provides an opportunity to reduce one's tax bill when satisfying certain eligibility requirements.
Free technical or marketing advice.
Provision of guarantees.
Government procurement policy that is responsible for a portion of the entity's sales.
These are disclosed but not recognized as government grants.

Recognition of Government Grants

Government grants are recognized if there is reasonable assurance that:
The attached conditions will be complied with.
The grants will be received.
The mere receipt of a grant does not necessarily mean that it is recognized as a government grant.
PAS 20 provides the following reasons why the receipt of government assistance may be significant in the preparation of the financial statements:
If resources are received, an appropriate accounting method is necessary to account for the receipt.
The indication of the extent to which the entity has benefited from the assistance during the period improves the comparability of its financial statements.

Description

Test your knowledge on PAS 20 which prescribes the accounting and disclosure of government grants as well as other forms of government assistance. Learn about what PAS 20 does not apply to and deepen your understanding of accounting standards.