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Learning Outcomes
Identify the Scope of the Standard. Describe the background material and implementation guidance of the Standard.
enterprise.
Government
Agriculture.
Government assistance that is provided for an enterprise in the form of benefits that are available in determining taxable income or are determined or limited on the basis of income tax liability (such as, Tax holidays, investment tax credits, accelerated depreciation allowances and
Definitions
Government assistance
Government
government
assistance
designed
is
to
action
provide
by
an
certain criteria.
Eg. Custom duty waiver at the point of important.
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Government assistance Contd. Government assistance for the purpose of this Standard does not include benefits provided indirectly through action affecting general trading conditions. Eg. provision of infrastructure in
Definitions Contd
Government Grant
Example: The government wants to encourage investment in industrial machinery. It offers a 10% cash grant for purchase of a range of machines. The conditions are: All machines must be used in the country. All machines must be bought within a 2year period to qualify for the grants.
and
Transactions
with
government
which
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Contd
Subsidy conditions may also be attached restrecting the type or location of the assets or the during which they are to be acquired or held.
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Example: The government wants to encourage investment in industrial machinery. It offers a 10% cash grant for purchase of a range of machines. The conditions are: All machines must be used in the country. All machines must be bought within a 2year period to qualify for the grants.
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Forgivable loans
Forgivable loans are loans which the lender
The benefit of a government loan at a below-market rate of interest (BMRI)is treated as a government grant. The loan shall be recognised and measured in accordance with LKAS 39 Financial Instruments: Measurement.
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Recognition
and
when
they
there
is
reasonable
assurance that,
1.
2.
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Approaches to Account for Government Grants Capital Approach Grant is credited directly to shareholders interest DR- Asset CR-Government Grant Government grant will be treated as a source of finance & it will be there for an indefinite period
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Financing Device
No repayment Not earned income Incentive provided by Government
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Income Approach
Grant is taken to income over one or
more periods.
DR-Asset
b)
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Transfer of Non- Monitory asset, land or other resources. Valuation at Fair value Or Record at a nominal value
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two ways.
1st Method
Setting up the grant as deferred income which is recognized as income on a systematic and rational basis over the
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The grant is recognized as income over the life of a depreciable asset by way of a reduced depreciation charge.
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Presentation of Grants Related to Income Either separately or under a general heading (such as other income)
Alternatively
Deduct from related expenses.
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If the repayment exceeds any such deferred credit, or where no deferred credit exists, recognized immediately as an expense.
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asset
or
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Other forms of Government Assistance Contd. Does not include the provision of
infrastructure by improvement to
General
Transport Network
reticulation
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Disclosure
government grants.
grants recognized.
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Disclosure
An
indication
of
other
forms
of
Unfulfilled
conditions
and
other
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Example 01
On April 2009 Benevolent Hospitals Ltd, revived a government grant of Rs 4,000,000 for the purchase of a machine which will be used for Kidney transplanting. The total cost of the machine was Rs.10,000,000 with an estimated life of five years. The company depreciated its machinery by the straight line method. You are required to advice the management as to the correct accounting treatment of this government grant with reference to LKAS 20.
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Example 02
The company received Government Grant of 40% of the cost of a machine purchased on 1st April 2009. The purchase price of the machine was Rs 12million. The machine is expected to have a
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