CAPITULO 10 INTERMEDIA - Chapter 10 Acquisition and...

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CHAPTER 10 ACQUISITION AND DISPOSITION OF PROPERTY, PLANT, AND EQUIPMENT This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each sup- plement chapter, which can be used to assess and reinforce student understanding of IFRS. GOVERNMENT GRANTS Many companies receive government grants. Government grants are assistance re- ceived from a government in the form of transfers of resources to a company in return for past or future compliance with certain conditions relating to the operating activi- ties of the company. 1 For example, ABInBev NV (BEL) received government grants related to fiscal incentives given by certain Brazilian states, based on the company’s operations and investments in these states. Danisco A/S (DEN) notes that it receives government grants for such items as research, development, and carbon-dioxide (CO 2 ) allowances and investments. In other words, a government grant is often some type of asset (such as cash; secu- rities; property, plant, and equipment; or use of facilities) provided as a subsidy to a com- pany. A government grant also occurs when debt is forgiven or borrowings are provided to the company at a below-market interest rate. The major accounting issues with gov- ernment grants are to determine the proper method of accounting for these transfers on the company’s books and how they should be presented in the financial statements. Accounting Approaches When companies acquire an asset such as property, plant, and equipment through a government grant, a strict cost concept dictates that the valuation of the asset should be zero. However, a departure from the cost principle seems justified because the only costs incurred (legal fees and other relatively minor expenditures) are not a reasonable basis of accounting for the assets acquired. To record nothing is to ignore the economic realities of an increase in wealth and assets. Therefore, most companies use the fair value of the asset to establish its value on the books. What, then, is the proper accounting for the credit related to the government grant when the fair value of the asset is used? Two approaches are suggested—the capital (equity) approach and the income approach. Supporters of the equity approach believe the credit should go directly to equity because often no repayment of the grant is expected. In addition, these grants are an incentive by the government—they are not earned as part of normal operations and should not offset expenses of operations on the income statement. Supporters of the income approach disagree—they believe that the credit should be
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CAPITULO 10 INTERMEDIA - Chapter 10 Acquisition and...

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