Summary 

Therefore, assistance by the State has a great importance  for the entity in preparing the financial reporting. Considering that if resources are transferred to the entity, the latter should select  a relevant accounting  method. At the same time,  it would be desirable if the entity reflects in its financial statements a benefit it received within the reporting period, as a result of such assistance. This will ensure observance of the principle of comparability  in the entity’s financial l reporting. 

The resources received by the grant can be cash and non-cash. Distinguish  is made between grants related to assets and revenues.

The grants related to the assets are given to the enterprise to purchase, create, build or otherwise attract long-term assets. In addition, the grant may provide additional conditions that determine the type, deployment, period of acquisition or possession of the asset.

The revenues-related grant is a  grant that is not related to the acquisition or creation of long-term assets. This type of grants are given to the  enterprises to  expand or implement certain activities.

One of the types of the state grant is also the excused loans. These are the loans  which payback  a lender denies voluntarily, according to earlier agreed terms and conditions. 

There are two methods of accounting the state grants: The capital-method and the revenue-method: 

• In case of apply the capital-method, the grant is reflected outside of the profit or loss, in the financial reporting;
• In case of apply the capital-method, the grant is reflected in  profit or loss, in during one or more  reporting periods. 

A major advantage of the capital-method is that the state grant is a tool of funding ,therefore, it should be reflected as the state grant in the financial statements and not in the profit or loss. At the same time, it would be unjustified to recognize the state grants in the profit or loss, since they are not generated by an enterpris, but is a stimulation implemented by the state, without bearing  associated costs. 

 As to recognition of the revenuers-method, its supporters consider that:

Since the shareholder are not a source of receiving the state grants, they cannot be reflected directly to the shareholders capital, but must be recognized in the profit or loss of a relevant reporting period. Besides, issuance of the state grants absolutely free of charge,  as a gift, takes place very rarely. An entity receives the grant in case only, if it meets  certain requirements and obligations.  Therefore,  the grants are reflected in the profit or loss in those periods when an entity recognizes its expenses as the costs, which are funded by the grant.

The main characterizing feature of the revenue-method  is that the state grants are recognized in the profit or loss on a systematic basis  in those reporting  periods when the entity recognizes its expenses as the costs, which are funded by the grant. Recognition of the state grants immediately after receiving, i.e. by the cash method, contradicts to the incomes charging  method. Application of the cash method can be allowed in cases only when  there exists no other basis to redistribute the grant over  other reporting periods except the type in which the grant was received. 

The state grant, which will be received for compensation of the expenses and losses incurred by the enterprise or for the urgent financial assistance of the enterprise, which does not have the appropriate future expenses, should be recognized as income for the period when it is subject to acceptance.

Grants related to amortized assets should be recognized as revenues in proportion to accrued depreciation in the period of depreciation on the asset.

The grants related to non-repatriation assets, which may mean fulfillment of certain obligations. should be recognized as revenues in the reporting period when the expenses will be spent to meet these obligations.

When the state grant is partially or fully returned, the returned amount shall be deducted from the remaining amount of the grant. And, the state grants, on which return amout arises, are considered as the re-view  of the accounting valuations.    

An entity should reflect the following items in the explanatory notes of the financial statement:  

a) Accounting policy used by the entity for the state grants, including the methods of inclusion of the grants into the financial reporting ;

b) Natural an size of the state grants reflected in the financial statements, as well as description of other forms of state allowances from which the entity derived a direct benefit;  

c) Unfulfilled conditions and other unforeseen events associated to  any type of the state allowances reflected in the financial statement.