Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p35
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 35/91)
Character Range: 101812–104783

A applies paragraph 16 and determines that it does not need to recognise related amounts of the following types:

                    a contribution by owners, as the grantor does not control or have an ownership interest in School A;

                    a contract with a customer within the scope of AASB 15.  The grant to construct an asset to be controlled by School A does not require a sufficiently specific transfer of goods or services to the grantor or another party (see paragraph F20 of AASB 15) and the requirement to continue using the school for EL programs is not sufficiently specific to know when the service has been provided.  This is because it is not possible to know at the time an EL program is delivered whether it is a program that satisfies requirements of the grant;

                    a lease liability as defined in AASB 16, as the agreement does not provide a right to use a specified asset;

                    a financial liability within the scope of AASB 9, as there is no obligation to provide cash or another financial asset to other parties; and

                    a provision within the scope of AASB 137, as the agreement specifies legal obligations and there are no other sufficiently specific constructive obligations to consider.

    Accounting treatment

    In accordance with paragraph 16 of AASB 1058, School A:

                    identifies each obligation relating to the receipt of the cash grant and allocates the entire grant ($2 million) to those obligations – the work to be undertaken to construct the ELC;

                    recognises a liability for its obligation under the agreement; and

                    recognises income as it satisfies its obligation to construct the school.

    In accordance with paragraph 16 of AASB 1058, income is recognised over time as the building is constructed.

    The journal entries for the accounting treatment are:

     Initial recognition Debit Credit

     1 July 20X1

     Cash  2,000,000

     Obligation  2,000,000

     Year 1

     30 June 20X2

     Obligation 1,200,000

     Income  1,200,000

      Debit Credit

     Building – work in progress 1,200,000

     Cash  1,200,000

     Year 2

     30 June 20X3

     Obligation 800,000

     Income  800,000

     Building – work in progress 800,000

     Cash  800,000

    The entries shown as 30 June 20X2 and 20X3 represent an aggregation of the entries occurring during each financial year.  For example, income recognition might occur during a financial year according to specific target points in the construction agreement, such as the completion of foundations, framing, roofing, lock-up, and so on.

    Example 10—Cash grant for the construction of a recognisable asset – income recognised at a point in time

    The State Government makes a cash grant of $100,000 to Hospital X to acquire 16 intensive care hospital beds that are to be controlled by the entity and used in its