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

Which statement about recognising government grants in profit and loss under AS 12 is correct?

Grants are recognised in profit and loss on a systematic and rational basis over the periods needed to match them with the related costs. Recognising them on a receipts basis is not in line with the accrual assumption in AS 1.

  1. ARecognise on a receipts basis, since cash is certain evidence of the grant
  2. BRecognise on a systematic and rational basis over the periods necessary to match them with the related costsCorrect
  3. CRecognise wholly in the year of sanction irrespective of the related costs
  4. DRecognise only when the related asset is sold

Explanation

Under the income approach, grants are recognised in profit and loss on a systematic and rational basis over the periods needed to match them with related costs. Recognition on a receipts basis is not in accordance with the accrual assumption of AS 1, so option A is wrong.

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