Accounting for Government Grants and Disclosure of Government Assistance: IAS 20. Wiecek and Young IFRS Primer Chapter 14. IAS 20 – Objective and Scope.
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Wiecek and Young
Recognition and Measurement:
Two general approaches:
* Grants from government are not equity financing, they are non-shareholder-related increases in net assets and therefore items of income.
Presentation of grants related to assets:
Dr. Cash 25
Cr. Deferred government grant 25
Dr. Cash 25
Cr. Equipment 25
Dr. Depreciation expense 20
Cr. Accumulated depreciation 20
Dr. Deferred government grant 5
Cr. Depreciation expense/grant income 5
Dr. Depreciation expense 15
Cr. Accumulated depreciation 15
Depreciation: ($100 - $25) ÷ 5 = 15
Presentation of grants related to income:
Dr. Grant receivable 10
Cr. Wages expense/grant income 10
Repayment of grants:
1. Inconsistent with the conceptual framework (deferred credits do not meet the definition of a liability)
2. Option allowed now understates an entity’s assets, reducing comparability of the entity’s financial statements (i.e., option to deduct grant from asset acquired)