PAS 20 Quiz: Government Grants and Assistance Test

Study Notes

PAS 20: Government Grants

Objective: To provide guidance on accounting for government grants and disclosure of government assistance
Scope:
- Does not deal with special problems arising from changing prices or supplementary information
- Excludes government assistance in the form of income tax-related benefits, government participation in ownership, and government grants related to biological assets

Recognition and Measurement

Government grants are assistance provided by the government in the form of transfers of resources, subject to certain conditions
Excludes government assistance that cannot be valued or transactions that cannot be distinguished from normal trading transactions
Recognition:
- Requires reasonable assurance that the entity will comply with grant conditions and receive the grant
- Receipt of a grant does not provide conclusive evidence that conditions have been or will be fulfilled
Government grants in the form of loans:
- Forgivable loans are treated as government grants when there is reasonable assurance that the entity will meet the terms for forgiveness
- Benefit of a government loan at a below-market rate of interest is treated as a government grant
Measurement:
- Benefit of a below-market rate of interest is measured as the difference between the initial carrying value of the loan and the proceeds received

Recognition in Profit or Loss

Recognised in profit or loss on a systematic basis over the periods in which the entity recognises related costs
Grants received as compensation for expenses or losses already incurred or for immediate financial support are recognised in profit or loss of the period in which they become receivable

Non-Monetary Grants

Assets and related income or liability from non-monetary assets are measured at:
- Fair value of the asset received
- Nominal amount in some cases

Presentation

Grants related to income:
- Presented as part of profit or loss, either separately or under a general heading
- Deducted in reporting the related expense
Grants related to assets:
- Presented in the statement of financial position either by:
  - Setting up the grant as deferred income
  - Deducting the grant in arriving at the carrying amount of the asset

Repayment of Government Grants

A government grant that becomes repayable shall be accounted for as a change in accounting estimate
For grants related to income, repayment is applied:
- Initially against any unamortised deferred credit recognised in respect of the grant
- Excess repayment is recognised immediately in profit or loss
For grants related to assets, repayment is recognised by:
- Increasing the carrying amount of the asset, with the cumulative additional depreciation recognised immediately in profit or loss
- Reducing the deferred income balance by the amount repayable

Disclosures

Required disclosures:
- Accounting policy adopted for government grants, including methods of presentation
- Nature and extent of government grants recognised in the financial statements
- Unfulfilled conditions and other contingencies attaching to government assistance that has been recognised

Description

This quiz covers the Philippine Accounting Standard 20, which deals with accounting for government grants and disclosure of government assistance. It includes the objectives and scope of PAS 20 and PAS 24.