BV2018 - MFRS 120 Standard
BV2018 - MFRS 120 Standard
MFRS 120
About IAS 20
In April 2001 the IASB adopted IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance, which had originally been issued by the
International Accounting Standards Committee in April 1983.
Other Standards have made minor consequential amendments to IAS 20. They
include IFRS 13 Fair Value Measurement (issued May 2011), Presentation of
Items of Other Comprehensive Income (Amendments to IAS 1) (issued June 2011),
IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9,
IFRS 7 and IAS 39) (issued November 2013) and IFRS 9 Financial Instruments
(issued July 2014).
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CONTENTS from
paragraph
Preface
MALAYSIAN FINANCIAL REPORTING STANDARD 120
ACCOUNTING FOR GOVERNMENT GRANTS AND
DISCLOSURE OF GOVERNMENT ASSISTANCE
SCOPE 1
DEFINITIONS 3
GOVERNMENT GRANTS 7
Non-monetary government grants 23
Presentation of grants related to assets 24
Presentation of grants related to income 29
Repayment of government grants 32
GOVERNMENT ASSISTANCE 34
DISCLOSURE 39
TRANSITIONAL PROVISIONS 40
EFFECTIVE DATE 41
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Preface
The MASB is implementing its policy of convergence through adopting International
Financial Reporting Standards (IFRSs) as issued by the IASB for application for annual
periods beginning on or after 1 January 2012. The IASB defines IFRSs as comprising:
(a) International Financial Reporting Standards;
(b) International Accounting Standards;
(c) IFRIC Interpretations; and
(d) SIC Interpretations.
MFRSs equivalent to IFRSs that apply to any reporting period beginning on or after
1 January 2012 are:
(a) Malaysian Financial Reporting Standards; and
(b) IC Interpretations.
Application of this Standard will begin in the first-time adopter’s* first MFRS financial
statements* in the context of adopting MFRSs equivalent to IFRSs. In this case, the
requirements of MFRS 1 First-time Adoption of Malaysian Financial Reporting
Standards must be observed. Application of MFRS 1 is necessary as otherwise such
financial statements will not be able to assert compliance with IFRS.
MFRS 120 is equivalent to IAS 20 Accounting for Government Grants and Disclosure
of Government Assistance as issued and amended by the IASB, including the effective
and issuance dates. Entities that comply with MFRS 120 will simultaneously be in
compliance with IAS 20.
* Appendix A of MFRS 1 defines first-time adopter and first MFRS financial statements.
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Definitions
3 The following terms are used in this Standard with the meanings
specified:
Government refers to government, government agencies and similar
bodies whether local, national or international.
Government assistance is action by government designed to provide an
economic benefit specific to an entity or range of entities qualifying
under certain criteria. Government assistance for the purpose of this
Standard does not include benefits provided only indirectly through
action affecting general trading conditions, such as the provision of
infrastructure in development areas or the imposition of trading
constraints on competitors.
Government grants are assistance by government in the form of transfers
of resources to an entity in return for past or future compliance with
certain conditions relating to the operating activities of the entity. They
exclude those forms of government assistance which cannot reasonably
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have a value placed upon them and transactions with government which
cannot be distinguished from the normal trading transactions of the
entity.2
Grants related to assets are government grants whose primary condition
is that an entity qualifying for them should purchase, construct or
otherwise acquire long-term assets. Subsidiary conditions may also be
attached restricting the type or location of the assets or the periods
during which they are to be acquired or held.
Grants related to income are government grants other than those related
to assets.
Forgivable loans are loans which the lender undertakes to waive
repayment of under certain prescribed conditions.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at the measurement date. (See MFRS 13 Fair Value Measurement.)
4 Government assistance takes many forms varying both in the nature of the
assistance given and in the conditions which are usually attached to it. The
purpose of the assistance may be to encourage an entity to embark on a course
of action which it would not normally have taken if the assistance was not
provided.
Government grants
7 Government grants, including non-monetary grants at fair value, shall
not be recognised until there is reasonable assurance that:
(a) the entity will comply with the conditions attaching to them;
and
(b) the grants will be received.
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evidence that the conditions attaching to the grant have been or will be
fulfilled.
9 The manner in which a grant is received does not affect the accounting
method to be adopted in regard to the grant. Thus a grant is accounted for in
the same manner whether it is received in cash or as a reduction of a liability
to the government.
13 There are two broad approaches to the accounting for government grants: the
capital approach, under which a grant is recognised outside profit or loss, and
the income approach, under which a grant is recognised in profit or loss over
one or more periods.
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17 In most cases the periods over which an entity recognises the costs or
expenses related to a government grant are readily ascertainable. Thus grants
in recognition of specific expenses are recognised in profit or loss in the same
period as the relevant expenses. Similarly, grants related to depreciable assets
are usually recognised in profit or loss over the periods and in the proportions
in which depreciation expense on those assets is recognised.
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27 The other method deducts the grant in calculating the carrying amount of the
asset. The grant is recognised in profit or loss over the life of a depreciable
asset as a reduced depreciation expense.
28 The purchase of assets and the receipt of related grants can cause major
movements in the cash flow of an entity. For this reason and in order to show
the gross investment in assets, such movements are often disclosed as
separate items in the statement of cash flows regardless of whether or not the
grant is deducted from the related asset for presentation purposes in the
statement of financial position.
30 Supporters of the first method claim that it is inappropriate to net income and
expense items and that separation of the grant from the expense facilitates
comparison with other expenses not affected by a grant. For the second
method it is argued that the expenses might well not have been incurred by
the entity if the grant had not been available and presentation of the expense
without offsetting the grant may therefore be misleading.
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31 Both methods are regarded as acceptable for the presentation of grants related
to income. Disclosure of the grant may be necessary for a proper
understanding of the financial statements. Disclosure of the effect of the
grants on any item of income or expense which is required to be separately
disclosed is usually appropriate.
Government assistance
34 Excluded from the definition of government grants in paragraph 3 are certain
forms of government assistance which cannot reasonably have a value placed
upon them and transactions with government which cannot be distinguished
from the normal trading transactions of the entity.
35 Examples of assistance that cannot reasonably have a value placed upon them
are free technical or marketing advice and the provision of guarantees. An
example of assistance that cannot be distinguished from the normal trading
transactions of the entity is a government procurement policy that is
responsible for a portion of the entity’s sales. The existence of the benefit
might be unquestioned but any attempt to segregate the trading activities from
government assistance could well be arbitrary.
36 The significance of the benefit in the above examples may be such that
disclosure of the nature, extent and duration of the assistance is necessary in
order that the financial statements may not be misleading.
37 [Deleted by IASB]
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Disclosure
39 The following matters shall be disclosed:
(a) the accounting policy adopted for government grants, including
the methods of presentation adopted in the financial
statements;
(b) the nature and extent of government grants recognised in the
financial statements and an indication of other forms of
government assistance from which the entity has directly
benefited; and
(c) unfulfilled conditions and other contingencies attaching to
government assistance that has been recognised.
Transitional provisions
40 An entity adopting the Standard for the first time shall:
(a) comply with the disclosure requirements, where appropriate;
and
(b) either:
(i) adjust its financial statements for the change in
accounting policy in accordance with MFRS 108; or
(ii) apply the accounting provisions of the Standard only
to grants or portions of grants becoming receivable or
repayable after the effective date of the Standard.
Effective date
41 This Standard becomes operative for financial statements covering periods
beginning on or after 1 January 1984.
44 [Deleted by IASB]
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47 [Deleted by IASB]
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