1 International Financial Reporting Standards IFRS for SMEs IFRS Foundation-World Bank 18–20 October 2011 Sarajevo, Bosnia and Herzegovina Copyright © 2010 IFRS Foundation. All rights reserved.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 2 The IFRS for SMEs Topic 4.3 Section 24 Government Grants Pascal Frerejacque

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 3 Section 24 – Overview Section 24 specifies the accounting for all government grants. A government grant is assistance by government in the form of a transfer of resources to an entity in return for past or future compliance with specified conditions relating to the operating activities of the entity.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 4 Section 24 – Scope exclusions Section 24 excludes –those forms of government assistance that cannot reasonably have a value placed upon them –transactions with government that cannot be distinguished from the normal trading transactions of the entity …continued

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 5 Section 24 – Scope exclusions Section 24 excludes –government assistance that is provided in the form of tax benefits (for example income tax holidays, investment tax credits, accelerated depreciation allowances or reduced income tax rates)

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 6 Section 24 – Accounting for grants –Grants that do not impose specified future performance conditions on the recipient are recognised in income when the grant proceeds are receivable. –Grants that impose specified future performance conditions on the recipient are recognised in income only when the performance conditions are met. –Grants received before the revenue recognition criteria are satisfied are recognised as a liability.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 7 Section 24 – Example – accounting Example: In 20X3 an entity received a government grant as compensation for damages caused by a flood in 20X1. This grant does not impose any future performance conditions on the entity. The entity shall recognise the grant as income in 20X3.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 8 Section 24 – Example – accounting In 20X1 an entity performed staff training about IFRS for SMEs. After the training took place the entity received a government grant for this purpose. This grant does not impose any future performance conditions on the entity. The entity shall recognise the grant as income in 20X1.

Section 24 – Example – accounting In 20X1 an entity received a government grant to purchase a piece of land in an undeveloped area. There are no other conditions attached to the grant. This grant does not impose any future performance conditions on the entity. The entity shall recognise the grant as income in 20X1. 9 © 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK.

10 Section 24 – Example – accounting In 20X1 an entity received a government grant to purchase a piece of land in an undeveloped area. The grant is conditional upon the entity employing a local labour force for a period of five years. In 20X1 an entity must recognise a liability for a grant. For each year that the entity satisfies the performance condition – employs a local labour force – 1/5 of the liability is derecognised and recognised in income.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 24 – Example – accounting In 20X1 an entity received a government grant to purchase a piece of land in an undeveloped area. The grant is conditional on the entity building a new plant on the land by 20X4. The entity completed the construction of the building in 20X3. In 20X1 an entity must recognise a liability for a grant. In 20X3, when the performance condition is satisfied, the entity derecognises the liability and recognises the income.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 24 – Measurement An entity shall measure grants at the fair value of the asset received or receivable.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 24 – Example – measurement In 20X1 a local government issued two identical broadcasting licences. One licence was sold by a public auction for CU100, while the second was granted to a local entity. The local entity that received the licence must measure income from the licence at fair value, which is (in the absence of evidence to the contrary) determined by the price reached in a public auction (ie CU100).

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 24 – Disclosure An entity shall disclose the following about government grants: –the nature and amounts of government grants recognised in the financial statements –unfulfilled conditions and other contingencies attaching to government grants that have not been recognised in income –an indication of other forms of government assistance from which the entity has directly benefited.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 24 – Note Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under specified criteria. Examples include free technical or marketing advice, the provision of guarantees, and loans at nil or low interest rates.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 24 – Example – disclosures In 20X0 the entity received CU100 from a local government as an incentive to operate a local ‑ language film studio. The incentive is conditional on the entity producing at least one local ‑ language film in each of the next five ‑ years. If in any of the five years of the grant, the entity does not produce a local ‑ language film it is required to refund to the local government one ‑ fifth of the CU100 grant for each year that a film is not produced.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Questions or comments? Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK This presentation may be modified from time to time. The latest version may be downloaded from: the+trainer+workshops.htm The accounting requirements applicable to small and medium ‑ sized entities (SMEs) are set out in the International Financial Reporting Standard (IFRS) for SMEs, which was issued by the IASB in July The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise.