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  • Government Grants and Borrowing Costs

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    Angeline Mascardo
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    This document summarizes accounting for government grants and borrowing costs. It defines government grants as assistance provided by government either related to assets or income. It also defines borrowing costs as interest and other costs incurred when borrowing funds. Borrowing costs can be capitalized for qualifying assets, which are assets that take substantial time to get ready for their intended use. The document outlines the accounting treatment and presentation of government grants and capitalization of borrowing costs.

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    This document summarizes accounting for government grants and borrowing costs. It defines government grants as assistance provided by government either related to assets or income. It also defines borrowing costs as interest and other costs incurred when borrowing funds. Borrowing costs can be capitalized for qualifying assets, which are assets that take substantial time to get ready for their intended use. The document outlines the accounting treatment and presentation of government grants and capitalization of borrowing costs.

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    © All Rights Reserved
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    19 views1 page

    Government Grants and Borrowing Costs

    Uploaded by

    Angeline Mascardo
    This document summarizes accounting for government grants and borrowing costs. It defines government grants as assistance provided by government either related to assets or income. It also defines borrowing costs as interest and other costs incurred when borrowing funds. Borrowing costs can be capitalized for qualifying assets, which are assets that take substantial time to get ready for their intended use. The document outlines the accounting treatment and presentation of government grants and capitalization of borrowing costs.

    Copyright:

    © All Rights Reserved
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    GOVERNMENT GRANT BORROWING COSTS

    Classification

     Grant related to asset- purchase or Borrowing Costs- PAS23


    construction of long-term asset
     Interest and other costs incurred in borrowing
     Grant related to income- those not related to
    funds (PAS 23)
    asset
     Specifically includes:
    Example of Government Grant - interest expense (effective interest method)
    1. Grant to defray expenses- grant income is recognized - Finance charge (finance lease)
    over the period of the project - FOREX difference from foreign currency
    (actual expense/total amt) *grant borrowing (adjustment to interest cost)
    2. Grant for the purchase/construction of depreciable
    Qualifying Asset
    asset- recognize as how the asset is depreciated
    3. Grant for non-depreciable asset An asset that necessarily takes a substantial period of
    4. Grant received as compensation for expense/losses time to get ready for the intended use or sale.
    incurred- recognized as income in the period when it
    becomes receivable. Includes:
    - Property, plant, and equipment
    Presentation of Government Grant - Investment property during the construction period
    Asset Related - Intangible
    1. As deferred income- Deferred income approach
    2. As a deduction in the carrying amount of the asset-
    Deduction from asset approach Exclusions:
    Income Related - assets measured at fair value, such as biological assets
    1. As grant income or as other income (PAS41)
    2. As a deduction from related expense - Inventory manufactured or produced in large quantity
    on a repetitive basis and that take a substantial period
    Repayment of Government Grant to get ready for sale (e.g.
    - did not meet/fully comply with attached conditions - Assets that are ready for their intended use or sale
    - considered a change in estimate when acquired
    - repayment related to income (remove all the
    unamortized deferred income, recognize a loss on Types of Borrowings
    previously recognized income) 1. General Borrowing- for any
    - repayment related to asset (increase the amount of 2. Specific Borrowing- intended for
    asset then correct the depreciation expense) purchase/construction of specific QA

    Accounting for Borrowing Costs


    Grant of Interest-Free Loan
    * Government Grant= Face Amount – PV of Loan Specific Borrowing
    Government Assistance (no value recorded) Actual borrowing cost
    Less interest income from investment proceeds
    - Technical/Marketing Assistance Capitalized borrowing cost
    - Provision of guarantee
    - Government procurement policy responsible for General Borrowing
    a portion of entity’s sales.

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