Grants related to assets and fair value accounting

Question

According to IAS 20, government grants related to assets, including non-monetary grants at fair value, shall be presented in the statement of financial position either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset.

Either way, the grant is recognized in P&L every period to match the expenses related to the assets. For instance, suppose a company purchased an asset for 1000$ and immediately received a 200$ government grant to help finance the purchase. The asset's useful life is 4 years. If the asset is measured at cost according to IAS 16, the *** expenses in P&L will be 200$ each year.

However, I don't know how much income from the grant is recognized in  P&L every period in the following situations:

1)  The asset is measured according to the revaluation model in IAS 16.
2) The asset is an investment property measured in fair value according to IAS 40

Thanks in advance.

Answer 1

Hello

1. If you want to apply Direct approach under IAS 20, then there is no need to deduct $200 from cost of Assets. In Direct approach following entries would be passed.

Bank  $200

            Deferred grant income  $200

Asset: cost (asset)  $10 000

            Bank $10 000

Depreciation Expense    ($10,000/4) $2,500

             Accumulated Depreciation     $2,500

Deferred grant income   ($200/4)       $50

                Grant Income                             $50

In case where assets is revalued and useful life is not revised then revaluation would not have any effects on recognition of Income but if the useful life is revised, then it would have effects on deferred income in the way that it would be recognized on new life.

If you want to apply Indirect approach, then $200 would be deducted from cost of asset being Deferred grant income and the *** amount would be used for calculating Depreciation and there is no need to recognize income on yearly basis and also revaluation model would not have any effect on reorganization of income.

1.  Any remaining grant relating to an asset that is being measured at fair value, after initial recognition at cost and using direct approach under IAS 20, should be recognized as income.

In case of any confusion, you can ask further question

regards

Hello

1. If you want to apply Direct approach under IAS 20, then there is no need to deduct $200 from cost of Assets. In Direct approach following entries would be passed.

Bank  $200

            Deferred grant income  $200

Asset: cost (asset)  $10 000

            Bank $10 000

Depreciation Expense    ($10,000/4) $2,500

             Accumulated Depreciation     $2,500

Deferred grant income   ($200/4)       $50

                Grant Income                             $50

In case where assets is revalued and useful life is not revised then revaluation would not have any effects on recognition of Income but if the useful life is revised, then it would have effects on deferred income in the way that it would be recognized on new life.

If you want to apply Indirect approach, then $200 would be deducted from cost of asset being Deferred grant income and the *** amount would be used for calculating Depreciation and there is no need to recognize income on yearly basis and also revaluation model would not have any effect on reorganization of income.

1.  Any remaining grant relating to an asset that is being measured at fair value, after initial recognition at cost and using direct approach under IAS 20, should be recognized as income.

In case of any confusion, you can ask further question

regards