Hello,
Grease money is a bribe given to an official to ensure that bureaucratic paperwork is processed quickly.In this context, grease money was used to speed up the processing of legal transfer of title to a land that was purchased. My question is, based on IAS/IFRS should this grease money be capitalizable to the cost of land? If not, what should the debit be?
Please help.
I didn't find the right solution from the Internet.
References:-
http://www.accounting-and-bookkeeping-tips.com/accounting-forum/viewtopi...
Thanks
This is not really an IFRS
This is not really an IFRS issue. Nevertheless, per IFRS (IAS 16.7): The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:
(a) it is probable that future economic benefits associated with the item will flow to the entity; and
(b) the cost of the item can be measured reliably.
Assuming that paying the fee is a prerequisite for being able to acquire the land, then it would qualify as a capitalizable cost per IAS 16.16.b as it is a cost that is “ directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.”
The problem is that paying such a fee is generally considered a bribe and paying bribes is a crime in most jurisdictions where IFRS is applied.
This implies that yes, a company can capitalize a bribe per IFRS.
However, if it gives a bribe, it is most likely in violation of law and will most likely be fined. Also, the person(s) who authorized and/or gave the bribe could quite possibly be jailed for committing a crime.
Obviously, law varies by jurisdictions.
For example, in the US, the Foreign Corrupt Practices Act of 1972 allows companies to make “facilitating payments”. These are (technically) bribes as they are paid to government officials. However, in some countries such payments are prerequisite for being able to do business. This implies that, as far as US law is concerned, facilitating payments are not considered a "bribe", but a form of tax.
On the other hand, the UK Bribery Act does not, in general, provide any relief. This implies that giving facilitating payments would be a punishable crime per UK law.
Please note.
Neither this forum nor this web site seeks to provide legal advice.
Further, the author of this contribution is not an attorney nor is licensed to practice law nor give legal advice.
As such, none of the above should not be construed to be legal advice.
Instead, it should be taken as the unqualified opinion of an unqualified layperson.