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

Regarding the cash flow effects of buying an asset and receiving a related government grant, which statement follows from AS 12?

The asset purchase and the related grant are often disclosed as separate items in the statement of changes in financial position. This is done regardless of whether the grant is deducted from the asset in the balance sheet, because it shows the gross investment in assets and the major cash movements.

  1. AOnly the net outflow is shown when the grant is deducted from the asset
  2. BThe grant receipt is never shown separately in any circumstance
  3. CThe purchase and the grant are often shown as separate items, whether or not the grant is deducted from the asset in the balance sheetCorrect
  4. DSeparate disclosure is needed only when the grant is treated as deferred income

Explanation

Paragraph 8.5 says such movements can be major, so, to show the gross investment in assets, they are often disclosed as separate items regardless of whether the grant is deducted from the asset for balance sheet presentation. Hence the net-only and deferred-income-only options are wrong.

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