Background: XYZ Corporation, a manufacturing company, has been awarded a government grant to support its research and development activities. The grant is intended to promote innovation and technological advancement in the industry. The company must navigate the accounting treatment of this government grant to accurately reflect its financial position.

Case Study Steps:

1. Grant Recognition:

XYZ Corporation needs to determine whether the government grant meets the criteria for recognition as income. This involves assessing whether there are any conditions attached to the grant and if XYZ Corporation is likely to comply with them.

2. Grant Measurement:

Once recognized, the government grant must be measured at fair value. XYZ Corporation should consider the fair value of the grant received and any conditions that might affect the timing or amount of the grant.

3. Timing of Recognition:

The timing of recognizing government grants depends on the nature of the grant. If the grant relates to expenses, XYZ Corporation may recognize it in the income statement over the periods necessary to match the grant with the related costs.

4. Conditions and Performance Obligations:

XYZ Corporation must carefully evaluate any conditions attached to the government grant. This includes performance obligations that the company must fulfill to receive the full benefit of the grant.

5. Presentation in Financial Statements:

Government grants and subsidies may be presented in the financial statements as income or deducted from related expenses, depending on the nature of the grant. Proper disclosure is crucial to provide transparency to stakeholders.

Objective Type Question:

Considering the case study on XYZ Corporation and its government grant, what is a key factor in determining the timing of recognizing government grants in the financial statements?