Government assistance is something that certain industries come by at least once a year, i.e. agriculture for instance, and in certain industries much more rarely and even so if certain events Continue reading
There are often times when your local government can assign a grant for your company or for your industry for you to apply for the grant etc. The means may vary, however the general approach to recognizing the grant on your financial statements remains the same. Continue reading
So say that you received a government grant and having been compliant with all the conditions, you receive the grant. You will now recognize it within the financial statements, only you don’t exactly know how to do it. For an example let’s say that the grant itself was for acquiring new equipment for your production. Continue reading
Once your company is applying for a government grant or it’s being offered assistance, it’s important to understand when exactly you can recognize the grant on the financial statements. Note here that accounting frameworks may differ with that regard in details, however the general principle applied is the same. Continue reading
In order for us to be on the same page, before we can move on, it’s important to define the words ‘government assistance’ and ‘grant’. Continue reading
Specifics are always tied to events and occasions, the donations received as such are hence dependable of the business type, industry the company is in etc., however, if there is an occasion your company does receive a donation, the treatment and disclosure requirements are still more or less the same. There are some special disclosure requirements for government grants and donations, but please consult your local reporting and disclosure framework guidance for it. With the following we are focusing on the accounting treatment.
If the grant is just given out without any further conditions, the amount given is your income (note here that if it’s for a specific investment or type of expense, it’s always shown as a part of that investment (decrease) or expense (decreasing the expense in essence)). When you receive the money or it’s more than probable you will obtain the donations and there are no conditions tied to it, you make the following entry:
1. You get to know of the donation to be received
Debit Other receivables 500
Credit Investment purchase / Operating expense / Other operating income (depending on the type of the donation – see above) 500
There may be a time and place in your business that you feel like you want to make a donation to someone. Be it whatever it is, the treatment is still the same.
If the grant is just given out without any further conditions, the amount given is your expense. At the time of the decision made you recognize an expense and a liability and when the payment is actually done, you just debit the liability and credit your cash account.
1. Making the decision
Debit Operating expenses 500
Credit Provisions / Other liabilities 500
2. Making the payment
Debit Provisions / Other liabilities 500
Credit Cash and cash equivalents 500