PPT: Accounting Standards (12) | Advanced Accounting for CA Intermediate PDF Download

 Page 1


  
(AS 12)
(AS 12)
Accounting for 
Accounting for 
Government Grants
Government Grants
Page 2


  
(AS 12)
(AS 12)
Accounting for 
Accounting for 
Government Grants
Government Grants
    
Scope
Scope
This Statement does not deal with: 
This Statement does not deal with: 
     
     
(i) the special problems arising in accounting for 
(i) the special problems arising in accounting for 
government grants in financial statements 
government grants in financial statements 
reflecting the effects of changing prices or in  
reflecting the effects of changing prices or in  
supplementary information of a similar nature;
supplementary information of a similar nature;
     
     
(ii) government assistance other than in the form 
(ii) government assistance other than in the form 
of government grants; 
of government grants; 
     
     
(iii) government participation in the ownership of 
(iii) government participation in the ownership of 
the enterprise.
the enterprise.
Page 3


  
(AS 12)
(AS 12)
Accounting for 
Accounting for 
Government Grants
Government Grants
    
Scope
Scope
This Statement does not deal with: 
This Statement does not deal with: 
     
     
(i) the special problems arising in accounting for 
(i) the special problems arising in accounting for 
government grants in financial statements 
government grants in financial statements 
reflecting the effects of changing prices or in  
reflecting the effects of changing prices or in  
supplementary information of a similar nature;
supplementary information of a similar nature;
     
     
(ii) government assistance other than in the form 
(ii) government assistance other than in the form 
of government grants; 
of government grants; 
     
     
(iii) government participation in the ownership of 
(iii) government participation in the ownership of 
the enterprise.
the enterprise.
  
Definitions
Definitions
        The following terms are used in this Statement with the The following terms are used in this Statement with the 
meanings specified: meanings specified:
          (i) (i) Government Government refers to government, government agencies  refers to government, government agencies 
and similar bodies  whether local, national or international. and similar bodies  whether local, national or international.
          (ii) (ii) Government grants Government grants are assistance by government in  are assistance by government in 
cash or kind to an enterprise for past or future compliance cash or kind to an enterprise for past or future compliance 
with certain conditions. They exclude those forms of with certain conditions. They exclude those forms of 
government assistance which cannot reasonably have a government assistance which cannot reasonably have a 
value placed upon them and transactions with value placed upon them and transactions with 
government which cannot be distinguished from the government which cannot be distinguished from the 
normal trading transactions of the enterprise. normal trading transactions of the enterprise.
Page 4


  
(AS 12)
(AS 12)
Accounting for 
Accounting for 
Government Grants
Government Grants
    
Scope
Scope
This Statement does not deal with: 
This Statement does not deal with: 
     
     
(i) the special problems arising in accounting for 
(i) the special problems arising in accounting for 
government grants in financial statements 
government grants in financial statements 
reflecting the effects of changing prices or in  
reflecting the effects of changing prices or in  
supplementary information of a similar nature;
supplementary information of a similar nature;
     
     
(ii) government assistance other than in the form 
(ii) government assistance other than in the form 
of government grants; 
of government grants; 
     
     
(iii) government participation in the ownership of 
(iii) government participation in the ownership of 
the enterprise.
the enterprise.
  
Definitions
Definitions
        The following terms are used in this Statement with the The following terms are used in this Statement with the 
meanings specified: meanings specified:
          (i) (i) Government Government refers to government, government agencies  refers to government, government agencies 
and similar bodies  whether local, national or international. and similar bodies  whether local, national or international.
          (ii) (ii) Government grants Government grants are assistance by government in  are assistance by government in 
cash or kind to an enterprise for past or future compliance cash or kind to an enterprise for past or future compliance 
with certain conditions. They exclude those forms of with certain conditions. They exclude those forms of 
government assistance which cannot reasonably have a government assistance which cannot reasonably have a 
value placed upon them and transactions with value placed upon them and transactions with 
government which cannot be distinguished from the government which cannot be distinguished from the 
normal trading transactions of the enterprise. normal trading transactions of the enterprise.
  
Accounting Treatment of Government 
Accounting Treatment of Government 
Grants
Grants
•
Capital Approach
Capital Approach
   
   
(i) Many government grants are in the nature of promoters' 
(i) Many government grants are in the nature of promoters' 
contribution, i.e., they are given with reference to the total 
contribution, i.e., they are given with reference to the total 
investment in an undertaking or by way of contribution towards 
investment in an undertaking or by way of contribution towards 
its total capital outlay and no repayment is ordinarily expected in 
its total capital outlay and no repayment is ordinarily expected in 
the case of such grants. These should, therefore, be credited 
the case of such grants. These should, therefore, be credited 
directly to shareholders' funds.
directly to shareholders' funds.
     
     
(ii) It is inappropriate to recognise government grants in the 
(ii) It is inappropriate to recognise government grants in the 
profit and loss statement, since they are not earned but represent 
profit and loss statement, since they are not earned but represent 
an incentive provided by government without related costs.
an incentive provided by government without related costs.
Page 5


  
(AS 12)
(AS 12)
Accounting for 
Accounting for 
Government Grants
Government Grants
    
Scope
Scope
This Statement does not deal with: 
This Statement does not deal with: 
     
     
(i) the special problems arising in accounting for 
(i) the special problems arising in accounting for 
government grants in financial statements 
government grants in financial statements 
reflecting the effects of changing prices or in  
reflecting the effects of changing prices or in  
supplementary information of a similar nature;
supplementary information of a similar nature;
     
     
(ii) government assistance other than in the form 
(ii) government assistance other than in the form 
of government grants; 
of government grants; 
     
     
(iii) government participation in the ownership of 
(iii) government participation in the ownership of 
the enterprise.
the enterprise.
  
Definitions
Definitions
        The following terms are used in this Statement with the The following terms are used in this Statement with the 
meanings specified: meanings specified:
          (i) (i) Government Government refers to government, government agencies  refers to government, government agencies 
and similar bodies  whether local, national or international. and similar bodies  whether local, national or international.
          (ii) (ii) Government grants Government grants are assistance by government in  are assistance by government in 
cash or kind to an enterprise for past or future compliance cash or kind to an enterprise for past or future compliance 
with certain conditions. They exclude those forms of with certain conditions. They exclude those forms of 
government assistance which cannot reasonably have a government assistance which cannot reasonably have a 
value placed upon them and transactions with value placed upon them and transactions with 
government which cannot be distinguished from the government which cannot be distinguished from the 
normal trading transactions of the enterprise. normal trading transactions of the enterprise.
  
Accounting Treatment of Government 
Accounting Treatment of Government 
Grants
Grants
•
Capital Approach
Capital Approach
   
   
(i) Many government grants are in the nature of promoters' 
(i) Many government grants are in the nature of promoters' 
contribution, i.e., they are given with reference to the total 
contribution, i.e., they are given with reference to the total 
investment in an undertaking or by way of contribution towards 
investment in an undertaking or by way of contribution towards 
its total capital outlay and no repayment is ordinarily expected in 
its total capital outlay and no repayment is ordinarily expected in 
the case of such grants. These should, therefore, be credited 
the case of such grants. These should, therefore, be credited 
directly to shareholders' funds.
directly to shareholders' funds.
     
     
(ii) It is inappropriate to recognise government grants in the 
(ii) It is inappropriate to recognise government grants in the 
profit and loss statement, since they are not earned but represent 
profit and loss statement, since they are not earned but represent 
an incentive provided by government without related costs.
an incentive provided by government without related costs.
  
Income Approach
Income Approach
   
   (i) Government grants are rarely gratuitous. The enterprise earns them through (i) Government grants are rarely gratuitous. The enterprise earns them through 
compliance with their conditions and meeting the envisaged obligations. They compliance with their conditions and meeting the envisaged obligations. They 
should therefore be taken to income and matched with the associated costs should therefore be taken to income and matched with the associated costs 
which the grant is intended to compensate. which the grant is intended to compensate.
          (ii) As income tax and other taxes are charges against income, it is logical to (ii) As income tax and other taxes are charges against income, it is logical to 
deal also with government grants, which are an extension of fiscal policies, in deal also with government grants, which are an extension of fiscal policies, in 
the profit and loss statement the profit and loss statement
          (iii) In case grants are credited to shareholders' funds, no correlation is done (iii) In case grants are credited to shareholders' funds, no correlation is done 
between the accounting treatment of the grant and the accounting treatment between the accounting treatment of the grant and the accounting treatment 
of the expenditure to which the grant relates. of the expenditure to which the grant relates.