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Accounting of free gifts

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)

16 July 2012

Could anyone please guide me on the accounting of free gifts (Not a receipt of government grant) received in the books of recipient under Indian Accounting standards or International accounting standards or under US GAAP.

Thanks

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3 Replies

Sanjay Chauhan (IFRS) (IFRS) (2714 Points)
Replied 16 July 2012

Under IFRS, it is clear that all transactions are initially accounted at fair value.

Thus, if the entity has received investment / assets as gift, it may chose a poliy of either taking it to p&L or equity.

Again, teh decesion is dependent on the tax jurisdiction and the giver of the gift.

if the gift is received from holding company, then it can be cosnidered as equity. if from unrelated party, it would be through income statement.

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 16 July 2012

IFRS at many places says that the accounting treatment should mirror the accounting treatment in the opponent's books. Entity giving gifts may record these transaction as their expense in the income statement and accordingly the recipient should record these gifts as their income. Recording in equity (not sure which line item) may be difficult to be justified.

Since, IFRS is a choice based accounting as Sanjay said the tax jurisdiction also plays an important role in influencing the accounting treatment.

Regards