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Hi,
I’m a bit confused around recognition of government grants in terms of what it actually means. Say an entity receives a grant in the a bank but has not met the conditions of the grant then i would have thought the treatment would be debit bank credit deffered income. Then when the condition/s are met then the grant can be recognised in the p and l over systematic basis. So the movement of the grant from deferred income to the p and l is what i understand as ‘recognising’ the grant to be rather than the debit bank credit deferred income.
I got a bit confused as the standard says:
A government grant is recognised only when there is reasonable assurance that (a) the entity will comply with any conditions attached to the grant and (b) the grant will be receivedso this would imply its possible to ‘recognise’ a grant without actually receiving it.
My question is, when the standard says ‘a government grant is recognised’ does it mean applied to p and l rather than debited to bank and deferred income. Also, if you know you will receive the grant in the future and met the conditions now then would the entries be to receivable and deferred income and then recognise the grant from deferred income to the p and l even though you have not actually received the grant?
Thanks for your help with this, apologies if its a bit long winded
I recommend you ask such technical Qs on the tutor forum, as you may not get a response on thie student forum. But while I’m here, let me try and answer.
According to the IFRS Conceptual Framework, recognition is:
“the process of capturing for inclusion in the statement of financial position or the statement(s) of financial performance an item that meets the definition of one of the elements of financial statements—an asset, a liability, equity, income or expenses.”
So following your scenario, the grant is initially recognised as deferred income (“initial recognition”). Subsequently, it will be recognised in profit or loss (as and when conditions are met).
Yes it is absolutely possibly to recognise a grant as a receivable. So if for example an entity has complied with (or is in the process of complying with) a grant, and has claimed it, it can recognise a receivable if it is likely (“reasonable assurance”) to be received. Whether you credit deferred income or profit or loss would depend on whether there is something else to “do” with the credit. If for example, you’ve already incurred expense, you’d credit profit or loss (leaving the net expense).
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