Question

In IFRS, when a company gives another company a grant. Why is it treated as a government grant? Explain in detail,please! Thank you!

Answer 1

According To Section 24 Of IFRS 102:- Govt. Grant deal with the ecognition, measurement and disclosures for government grants. Government grants are assistance in the form of a transfer of resources to an entity in return for past or future compliance with specific conditions. It excludes transactions with governments that cannot be distinguished from the normal trading transactions of the entity.

The government grant is recognised at their fair value when there is reasonable assurance the entity will comply with the conditions of the grant and that the grant will be received.

Once these conditions are met, the entity then has two accounting policy choices to recognise the grant:

• The performance model
• The accrual model.

The performance model:- The performance model works by recognising grant income when the grant’s performance-related conditions are met. Certain grants are given by government without any conditions attached (for example to compensate for a loss of income) and where grants are unconditional, they should be recognised within income when they are receivable. The model works as follows:

• A grant that does not impose specified future performance-related conditions on the recipient is recognised in income when the grant proceeds are receivable.
• A grant that imposes specified future performance conditions on the recipient is recognised in income only when the performance-related conditions are met.
• Grants received before the revenue recognition criteria are satisfied are recognised as a liability

The accrual model:- There are four methods of accounting for grants under the accrual model:

• Grants relating to revenue are recognised in income on a systematic basis over the periods in which the entity recognises the related costs for which the grant is intended to compensate.
• A grant that becomes receivable as compensation for expenses or losses already incurred, or for the purpose of giving immediate financial support to the entity with no future related costs, is recognised in income in the period in which it becomes receivable.
• Where part of a grant relating to an asset is deferred, it shall be recognised as deferred income and not deducted from the carrying amount of the asset.

The first thing that a company has to do is to consider whether the grant relates to revenue, or whether it relates to an asset.

So In IFRS, when a company gives another company a grant. Why is it treated as a government gran Bsaed On Above Condition.