Skip to content

CMA Intermediate · Financial Accounting · Accounting for Government Grants (AS 12)

A company recognises a government grant in profit and loss only when the cash is received, even though the related costs are incurred over four years. According to AS 12, this practice is

The practice is not acceptable. AS 12 requires grants to be recognised in profit and loss on a systematic and rational basis matching related costs, and says recognising on a receipts basis conflicts with the accrual assumption.

  1. Aacceptable, as it is prudent and simple
  2. Brequired for all grants in cash
  3. Cnot in accordance with the accrual assumption, as grants should be recognised on a systematic and rational basis to match related costsCorrect
  4. Dacceptable only if the grant is non-monetary

Explanation

AS 12 states that the income approach requires recognition in profit and loss on a systematic and rational basis over the periods needed to match the related costs. It adds that recognition on a receipts basis is not in accordance with the accrual assumption.

Did you get it right without looking?

One question tells you little. A timed set on Accounting for Government Grants (AS 12) shows your real accuracy, how long you take and where you lose marks.

Practise Accounting for Government Grants (AS 12)Free diagnostic mock

More Accounting for Government Grants (AS 12) questions