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COVID-19: How to account for wage costs subsidy?

COVID-19: How to account for wage costs subsidy?

Wage costs subsidy qualifies as an operating government grant under Dutch GAAP. It is recognised in the financial statements when there is reasonable assurance the conditions of the grant will be met and the wage costs subsidy will be received. It is recognised, on a systematic basis, as income in the profit and loss account in the period in which the subsidised costs are recognised as an expense. In this way, a matching of expenses and income is achieved.

Fred Versteeg

Partner Department of Professional Practice

KPMG Nederland

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What’s the issue?

The Dutch government has introduced a wage costs subsidy scheme (‘NOW’) in order to bridge a substantial decrease in turnover and maintain employment in the short term. Employers can apply for the wage costs subsidy when certain conditions are met. The subsidy will be an allowance for wage costs for the period 1 March to 31 May 2020 and is related to the percentage of decrease in turnover for a certain period. Each employer will receive an advance lump sum payment of 80% of the applied subsidy. This advance payment will be netted against the final amount of the subsidy. The question arises: How to account for this wage costs subsidy under Dutch GAAP?

Getting into more detail

The wage costs subsidy qualifies as an operating government grant under Dutch GAAP. Government grants are a form of government assistance, on which a value can be placed, related to the operating activities of a company in return for compliance with certain past or future conditions. The wage costs subsidy compensates for operating deficits in a specific period.

Government grants are recognised in the financial statements when there is reasonable assurance the conditions of the grant will be met and the subsidy will be received. It is recognised, on a systematic basis, as income in the profit and loss account in the period in which the subsidised costs are recognised as an expense. In this way, a matching of expenses and income is achieved. In our view, any grant received for expenses or losses already incurred, is recognised in the profit and loss account in the period in which it becomes receivable.

NOW subsidy

Recognition

The Dutch government stated that a lump sum payment will be paid upfront upon application, therefore a company should have reasonable assurance that the wage costs subsidy will be received when applied for it. The NOW subsidy will be recognised in the profit and loss account on a systematic basis in the period in which the wage costs are recognised.

Changes in estimate

If a change in estimate of the amount to be received is required, this will be accounted for as a change in accounting estimate. In our view this change or reversal should be presented in the same line item of the profit and loss account as the original estimate.

Presentation in the profit and loss account

The presentation in the profit and loss account of an operating government grant is not prescribed under Dutch GAAP. Presenting the wage costs subsidy as 'other operating income' (it does not meet the definition of net turnover) or deducting the wage costs subsidy from the relevant costs is an accounting policy choice. This choice needs to be consistent with other operating government grants the company receives.

Actions for management to take now

  • Ensure that supporting evidence is available that the conditions for the subsidy are met when recognising the subsidy.

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