Government grants are assistance by
government in the form of transfers of resources to an entity in return for
past or future compliance with certain conditions relating to the operating
activities of the entity.
Types
of Grants
There are two (2) types of grants. These are:
1.
Capital
Grant
2.
Revenue
Grant
Capital Grant: Grant government gives to an
entity to purchase, construct or acquire long term assets. Example: Government
grant given to an entity to set up a factory, build a branch office in a
particular location.
Revenue Grant: Grant government gives to an entity
to take care of expenses such as salaries, utility cost, training cost etc.
Government grants, including non-monetary
grants at fair value shall not be recognized until there is a reasonable
assurance that:
1. The
entity will comply with the conditions attaching to them; and
2. The
grants will be received.
Treatment of Government Grant
Capital Grant
There are two methods of treating capital grants. These are:
1.
Deferred
Income Approach: This is where the grant is recognised as deferred income and
amortised(sent to the income statement) periodically in proportion to the
useful life of the related asset
2.
Deduct
grant from the cost of Asset: Deduct the grant from the cost of the asset and
recognize the result in the income statement.
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