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ACCA Strategic Professional · Strategic Business Reporting (International) · Non-current assets

Elm Co's finance director proposes to recognise a $1,000,000 government grant as income in full in the current year, although the grant is conditional on Elm keeping 200 jobs for three years and Elm has only just begun the programme. Elm is likely to meet the conditions. Which is the correct treatment under IAS 20 and relevant ethical considerations?

The grant should be recognised in profit or loss systematically over the three years in which the related employment costs are incurred, since there is reasonable assurance of compliance. Recognising it all now would overstate current profit and would be an integrity problem for the accountant.

  1. ARecognise in full now because receipt is probable and the bonus targets depend on profit
  2. BRecognise over the three years in which the related costs of employment are incurred; recognising it all now would be misleadingCorrect
  3. CDo not recognise any amount until the three years have ended
  4. DCredit the grant directly to equity as a capital contribution

Explanation

IAS 20 recognises grants in profit or loss on a systematic basis over the periods in which the related costs are recognised, once there is reasonable assurance of compliance and receipt. Front-loading to boost profit would be aggressive reporting and raises an integrity concern for the accountant. Waiting until the end is also not required, and crediting equity is prohibited.

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