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ACCA Applied Skills · Financial Reporting · Government grants

Kena Co received a $40,000 government grant in March 20X5 as immediate financial support after a flood, with no future conditions and no related future costs. Which treatment is correct under IAS 20?

Kena should recognise the full $40,000 in profit or loss in the period it becomes receivable. IAS 20 requires this for grants giving immediate support or compensating losses already incurred, with no future related costs to match against.

  1. ARecognise $40,000 in profit or loss in the period it becomes receivableCorrect
  2. BDefer the grant and release it over five years
  3. CCredit $40,000 to a revaluation surplus
  4. DDeduct $40,000 from the carrying amount of property, plant and equipment

Explanation

IAS 20 states that a grant receivable as compensation for losses already incurred, or for immediate financial support with no future related costs, is recognised in profit or loss in the period in which it becomes receivable. Deferral would apply only where there are future related costs.

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