IAS 20 Government Grants

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giorgio
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IAS 20 Government Grants

Post by giorgio »

Hello,
i have question:
Company sells electricity to household customers, because of covid 19 government decided to subsidise household customers and pay electricity bills for them before customers paid it. can we recognize these resources as grants for company?

my opinion is - no, because government doesn't supports company, he supports customers, but i need arguments against my opinion.

thanks for help.
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Marek Muc
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Re: IAS 20 Government Grants

Post by Marek Muc »

Are you concerned about recognising it as revenue or simply labelling it as grant?

See here:

https://inform.pwc.com/inform2/show?act ... 3606083761
JRSB
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Re: IAS 20 Government Grants

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Presumably the government supports the customers by paying money to the company, unless the government regulates the tariff and has reduced it accordingly (unlikely I'd speculate)
giorgio
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Re: IAS 20 Government Grants

Post by giorgio »

Marek Muc wrote: 01 Sep 2020, 17:24 Are you concerned about recognising it as revenue or simply labelling it as grant?

See here:

https://inform.pwc.com/inform2/show?act ... 3606083761
in that topic there is a case about lost income, but in our case lost income doesnt exists, because government pays bills instead of customers, and there is no evidence that if government doesnt pay it can cause loosing revenues for company, in other words - there is no evidence that customers would not pay if government dosent pay.

hoping for your response!
Thanks!
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Marek Muc
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Re: IAS 20 Government Grants

Post by Marek Muc »

I see, so I would also say that these are not grants from your company's perspective, because they don't meet the definition which is outlined in the first paragraphs here:
https://ifrscommunity.com/knowledge-bas ... ssistance/

However, are you sure that you don't benefit from this arrangement? For example, government may have saved you some credit losses. I would disclose this as government assistance in your financial statements

What do you think JRSB?
JRSB
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Re: IAS 20 Government Grants

Post by JRSB »

I don't quite follow how it is understood that the customer would not otherwise pay. What are the government actually doing? Have they enacted a law to put a ceiling on energy prices? I would think in most cases they are subsidising a customer's bill of €100 by paying €20 to the company and the consumer pays €80. If the consumer would have paid only €80, what is the €20? Is the government suspending collecting a tax on the price?
giorgio
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Re: IAS 20 Government Grants

Post by giorgio »

Marek Muc wrote: 02 Sep 2020, 11:02 I see, so I would also say that these are not grants from your company's perspective, because they don't meet the definition which is outlined in the first paragraphs here:
https://ifrscommunity.com/knowledge-bas ... ssistance/

However, are you sure that you don't benefit from this arrangement? For example, government may have saved you some credit losses. I would disclose this as government assistance in your financial statements

What do you think JRSB?
In the beginning of April 2020 Government issued special act which says:
"due to the deteriorating socio-economic situation caused by the new coronavirus to help the citizens, For household customers who have consumed (or will consume) 200 kilowatt hours or less of electricity in the reporting month (March, April, May) the electricity bills will be subsidized from the state budget; The amount paid will be reflected on the personal subscription card of customers; A household customer who meets the requirements of this Regulation is entitled to refuse a subsidy."

and after all of that government transferred money on our company's bank account to allocate them to customers bills.

So, in act there is clear description who gets the subsidy and who gets support of government - customers! and because of that i think in company's financial statements it should not be disclosed as government assistance or grant.

Your opinions?
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Marek Muc
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Re: IAS 20 Government Grants

Post by Marek Muc »

However, are you sure that you don't benefit from this arrangement? For example, government may have saved you some credit losses. I would disclose this as government assistance in your financial statements
JRSB
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Re: IAS 20 Government Grants

Post by JRSB »

It gives an incentive to use more energy? So it's generating more revenue for the energy company, albeit some paid by government
giorgio
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Re: IAS 20 Government Grants

Post by giorgio »

JRSB wrote: 03 Sep 2020, 19:20 It gives an incentive to use more energy? So it's generating more revenue for the energy company, albeit some paid by government
no, it doesn't generates more revenue, because revenue limit is set by national regulatory commission, company cant get more or less money from service he provided than its set by regulator, if company gets more - regulator sets less revenue limit for next period and vice versa...
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