AC120 lecture 21 Outline of semester 2 –Individual standards on grants, VAT, stock, tangible fixed assets –Final accounts of companies and relevant notes –Internal control and error correction –Cash flow statements –Interpretation of financial statements

Tutorials and CA exam Standard tutorials re-commence week 2 Additional tutorial by request only Refer to the webpage for your tutorial time and location Continuous assessment week 4 Tuesday 11.00am QG13 Same procedure as for CA in semester 1

Accounting for government grants Guidance is provided by SSAP 4 (refer to ICAI Handbook in the library) First issued in 1974, amended in 1990 Government assistance can take different forms –Loans –Equity –Grant aid

Accounting for grants Different grants may be given on varying terms, differing conditions to be fulfilled, different times of payment. Grants may be to assist with meeting specific expenditure or to contribute towards non-financial goals. How should an entity account for grants so that the reader of financial statements is provided with useful information?

Accounting for grants Revenues and costs should be accrued and matched with each other in the profit and loss account of the period to which they relate. Government grants should therefore be booked to the profit and loss account in the same period as the expenditure towards which it is supposed to contribute

Example 1 Company A applies to a government agency for funding to support a marketing drive in one of the new EU-member countries. The marketing drive has a budget of €500,000. The full amount is spent before financial year end 31 December. The grant application is successful and the amount of the grant is received before financial year end How should company A account for the grant and marketing expenditure for the year ended 31 December?

Example 2 Same situation as example 1 except that the company was notified that the application was successful before year end but didn’t actually receive the funds until after the year end How should the company account for the grant and the expenditure?

Example 3 Same situation as example 2 except that the company only spent €400,000 of the €500,000 marketing budget before the financial year end How should the company account for the grant and the expenditure?

Example 4 Company A buys a fixed asset for €1 million. Depreciation policy is 25% straight line The company receives a government grant of €600,000 as a contribution towards the cost of the asset Grant income and expenditure amounts received and paid respectively before the financial year end. How should company A account for the grant and the fixed asset?