When an asset is permanently withdrawn from use, or sold or scrapped, and no future economic benefits are expected from its disposal, it should be withdrawn from the statement of financial position.
Gains or losses are the difference between the estimated net disposal proceeds and the carrying amount of the asset. They should be recognised as income or expense in the profit or loss.
An entity is required to derecognise the carrying amount of an item of property, plant or equipment that it disposes of on the date the criteria for the sale of goods in IAS 18 Revenue would be met. This also applies to parts of an asset.
An entity cannot classify as revenue (ie in profit or loss) a gain it realises on the disposal of an item of property, plant and equipment.
4: Accounting for tangible non-current assets
Disclosure
The standard has a long list of disclosure requirements, for each class of property, plant and equipment.
(a) Measurement bases for determining the gross carrying amount (if more than one, the gross carrying amount for that basis in each category)
(b) Depreciation methods used
(c) Useful lives or depreciation rates used
(d) Gross carrying amount and accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period (e) Reconciliation of the carrying amount at the beginning and end of the period
showing:
(i) Additions (ii) Disposals
(iii) Acquisitions through business combinations (see Chapter 17) (iv) Increases/decreases during the period from revaluations and from
impairment losses
(v) Impairment losses recognised in profit or loss (vi) Impairment losses reversed in profit or loss (vii) Depreciation
(viii) Net exchange differences (from translation of statements of foreign entity)
(ix) Any other movements.
2 IAS 20: Accounting for government grants and disclosure of government assistance
It is common for entities to receive government grants for various purposes (grants may be called subsidies, premiums, etc). They may also receive other types of assistance which may be in many forms. The treatment of government grants is covered by IAS 20 Accounting for government grants and disclosure of government assistance.
Prior to the issue of IAS 20, government grants provided companies with an easy way to ramp up profits. In some cases grants would be credited to revenue in full, as soon as they were received. IAS 20 was issued to remedy this abuse.
IAS 20 does not cover the following situations.
Accounting for government grants in financial statements reflecting the effects of changing prices
Government assistance given in the form of 'tax breaks'
Government acting as part-owner of the entity
These definitions are given by the standard, as amended by IFRS 13.
There are many different forms of government assistance: both the type of assistance and the conditions attached to it will vary. Government assistance may have encouraged an entity to undertake something it would not otherwise have done.
How will the receipt of government assistance affect the financial statements?
(a) An appropriate method must be found to account for any resources transferred.
(b) The extent to which an entity has benefited from such assistance during the reporting period should be shown.
An entity should not recognise government grants (including non-monetary grants at fair value) until it has reasonable assurance that:
The entity will comply with any conditions attached to the grant.
The entity will actually receive the grant.
Government. Government, government agencies and similar bodies whether local, national or international.
Government assistance. Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria.
Government grants. 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 have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.
Grants related to assets. Government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire non-current 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. Government grants other than those related to assets.
Forgivable loans. Loans which the lender undertakes to waive repayment of under
certain prescribed conditions. (IAS 20)
Fair value. 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. (IFRS 13)
4: Accounting for tangible non-current assets
Even if the grant has been received, this does not prove that the conditions attached to it have been or will be fulfilled.
It makes no difference in the treatment of the grant whether it is received in cash or given as a reduction in a liability to government, ie the manner of receipt is
irrelevant.
Any related contingency should be recognised under IAS 37 Provisions, contingent liabilities and contingent assets, once the grant has been recognised.
In the case of a forgivable loan (as defined in the key terms above) from
government, it should be treated in the same way as a government grant when it is reasonably assured that the entity will meet the relevant terms for forgiveness.