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Hello Sir!
Kindly Explain what is the meaning of release of Govt. Grant how it can be a Non Cash Item Kindly explain its treatment in Statement of Cash Flow…
Thanks!!!Sir I have one understanding about it that it is the one in which we follow deferred income concept in which we recognised income when we have satisfied conditions but for cashflow it is non cash item because we had recognised govt. Grant cash when it was received..
Hi,
When we receive the cash it will be recorded as deferred income, so there is a cash inflow in the year that needs to be shown in the cash flow statement in that year.
The deferred income is then released through profit or loss each year, which will increase profits but it will have no cash impact. This release of the grant is the amortisation of it and we need to make an adjustment to profits as the profit has gone up this year but the cash has not, the cash was received in previous years. To record this we need to therefore reduce the profits in the operating activities by the amount of the decrease in the deferred income, i.e. the amount that was amoritsed through profit or loss.
Hope that makes some sense.
Thanks
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