Question

A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs should be recognized as income _____________.

1) When received
2) Of the period in which it becomes receivable
3) Over a maximum of 5 years using straight line
4) Over a maximum of 10 years using straight line

Answer 1

A government grant for immediate financial support with no future related costs should be recognized as income of the period in which it becomes receivable, matching the income with the period of the related expense.

Step-by-step explanation:

A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to an entity with no future related costs should be recognized as income of the period in which it becomes receivable. This is in accordance with the principle of income recognition, where income is recognized in the period that the related income-generating event occurs. Grants received in this manner are meant to reimburse entities for expenses already incurred or provide immediate aid, and thus, it is appropriate to recognize them when the right to receive the grant is established, rather than when the cash is actually received.