ACCA AAA INT Syllabus D. Audit of Historical Financial Information - Government Grants - audit - Notes 17 / 41
There re 2 types - Revenue and Capital
The debit is always cash so we only have to know where we put the credit..
Revenue Grant
Cr I/S (other income or reduce expense)
Capital Grant
Cr Cost of asset
or
Cr Deferred Income
Revenue Grant
For I/S items such as wages etc
Dr Cash Cr Other income (or expense)
Capital Grant
For NCA such as machines and buildings
Option 1
Dr Cash Cr Cost of asset
This will have the effect of reducing depreciation on the income statement and the asset on the SFP
Option 2
Dr Cash Cr Deferred Income
This will have the effect of keeping full depreciation on the income statement and the full asset and liability on the SFP
Then...
Dr Deferred Income Cr Income statement (over life of asset)
This will have the effect of reducing the liability and the expense on the income statement
An Example
Option 1
Asset $100 with 10yrs estimated useful life
Received grant of $50Accounting for a grant received:
DR Cash $50
CR Asset $50At the Y/E
Depreciation charge:
DR Depreciation expense (I/S) (100-50)/10yrs = $5
CR Accumulate depreciation $5Option 2
Asset $100 with 10yrs estimated useful life
Received grant of $50Accounting for a grant received:
DR Cash $50
CR Deferred income $50At the Y/E
Depreciation charge:
DR Depreciation expense (I/S) 100/10yrs = $10
CR Accumulate depreciation $10Release of deferred income:
DR Deferred income 50/10yrs =$5
CR I/S $5
Government grants can only be recognised when it is probable that all terms will be reached
What isn't a government grant?
Government advice
Preferred government supplier
Tax breaks from the government