Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p37
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 37/91)
Character Range: 107165–110261

legal obligations and there are no other constructive obligations to consider.

    Accounting treatment

    In accordance with paragraph 16 of AASB 1058, Hospital X recognises the grant initially as a liability at the point in time when it obtains control of the funds.  Hospital X recognises income as it acquires and controls the hospital beds.

    The journal entries for the accounting treatment are:

      Debit Credit

     Initial recognition

     Cash  100,000

     Obligation  100,000

     First purchase

     Obligation 37,500

     Income  37,500

     Equipment – ICU 37,500

     Cash  37,500

     Second purchase

     Obligation 62,500

     Income  62,500

     Equipment – ICU 62,500

     Cash  62,500

    Example 11—Cash grant for the development of an unrecognisable asset – immediate income

    The State Government makes a cash grant of $170,000 to Research Institute N to research improvements to long-range rainfall prediction models for agricultural areas in the west of the State.  This will develop the intellectual property of the institute.

    The terms of the agreement require Institute N to:

                    develop its existing prediction models with the aim of improving the accuracy of six-month and twelve-month forecasts;

                    provide semi-annual budget reports that detail how the funds have been spent; and

                    return any funds that remain unspent after eighteen months.

    Scope and asset recognition

    Research Institute N determines:

                    the agreement is enforceable as grant funds are refundable if the research is not undertaken or the funds are not fully expended under the project;

                    the agreement is not a contract with a customer as defined in AASB 15 since no transfer of goods or services to the Government or other parties is required;

                    the $170,000 grant is an asset acquired by Institute N for consideration that is significantly less than the fair value of the grant to further the objectives of the institute.  Accordingly, the grant is within the scope of AASB 1058; and

                    it controls a financial asset ($170,000) within the scope of AASB 9.

    Institute N determines its agreement with the State Government is a transfer of a financial asset to enable it to acquire a non-financial asset (intellectual property) to be controlled by the institute.  However, the institute concludes that the agreement does not meet the criteria in paragraph 15 of AASB 1058, since the non-financial asset cannot be recognised under other Standards: AASB 138 does not permit the recognition of research as an asset.  Accordingly, the institute is not able to apply paragraph 16 to recognise a liability in relation to the obligation under the agreement to develop the non-financial asset.

    Institute N therefore applies paragraph 9 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