Topic 10: IAS 20

• Recognising government grants in profit or loss on a receipts basis is not in accordance with the accrual accounting assumption (see IAS 1 Presentation of Financial Statements) and would be acceptable only if no basis existed for allocating a grant to periods other than the one in which it was received
• In most cases the periods over which an entity recognises the costs or expenses related to a government grant are readily ascertainable
• Recognising government grants

  1. Grants in recognition of specific expenses are recognised in profit or loss in the same period as the relevant expenses

  2. Grants related to depreciable assets are usually recognised in profit or loss over the periods and in the proportions in which depreciation expense on those assets is recognised
• Recognising grants related to non-depreciable assets

  1. May require the fulfilment of certain obligations and would then be recognised in profit or loss over the periods that bear the cost of meeting the obligations

  2. A grant of land may be conditional upon the erection of a building on the site and it may be appropriate to recognise the grant in profit or loss over the life of the building
• Grants are sometimes received as part of a package of financial or fiscal aids to which a number of conditions are attached
• Allocating grants received as part of a package


  It may be appropriate to allocate part of a grant on one basis and part on another
• A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised in profit or loss of the period in which it becomes receivable
• A government grant may become receivable by an entity as compensation for expenses or losses incurred in a previous period
• Recognising a grant as compensation for previous expenses/losses

  Such a grant is recognised in profit or loss of the period in which it becomes receivable, with disclosure to ensure that its effect is clearly understood
• Non-monetary government grants


  A government grant may take the form of a transfer of a non-monetary asset, such as land or other resources, for the use of the entity
• Accounting for non-monetary government grants

  1. It is usual to assess the fair value of the non-monetary asset and to account for both grant and asset at that fair value

  2. An alternative course that is sometimes followed is to record both asset and grant at a nominal amount
• Presentation of grants related to assets

  • Setting up the grant as deferred income and recognising it in profit or loss on a systematic basis over the useful life of the asset
  • Deducting the grant in calculating the carrying amount of the asset and recognising it in profit or loss over the life of a depreciable asset as a reduced depreciation expense
• The purchase of assets and the receipt of related grants can cause major movements in the cash flow of an entity
• Presenting grants related to income

  1. Grants related to income are presented as part of profit or loss, either separately or under a general heading such as 'Other income'

  2. Grants related to income are deducted in reporting the related expense
• Both methods of presenting grants related to income are regarded as acceptable
• Accounting for repayment of government grants

  1. Repayment of a grant related to income shall be applied first against any unamortised deferred credit recognised in respect of the grant

  2. To the extent that the repayment exceeds any such deferred credit, or when no deferred credit exists, the repayment shall be recognised immediately in profit or loss

  3. Repayment of a grant related to an asset shall be recognised by increasing the carrying amount of the asset or reducing the deferred income balance by the amount repayable

  4. The cumulative additional depreciation that would have been recognised in profit or loss to date in the absence of the grant shall be recognised immediately in profit or loss
• Circumstances giving rise to repayment of a grant related to an asset may require consideration to be given to the possible impairment of the new carrying amount of the asset
• Government assistance


  Certain forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity
• The existence of the benefit from government assistance might be unquestioned but any attempt to segregate the trading activities from government assistance could well be arbitrary
• The significance of the benefit from government assistance may be such that disclosure of the nature, extent and duration of the assistance is necessary in order that the financial statements may not be misleading
• Government assistance does not include the provision of infrastructure by improvement to the general transport and communication network and the supply of improved facilities such as irrigation or water reticulation which is available on an ongoing indeterminate basis for the benefit of an entire local community
• Matters to be disclosed

  • The accounting policy adopted for government grants, including the methods of presentation adopted in the financial statements
  • The nature and extent of government grants recognised in the financial statements and an indication of other forms of government assistance from which the entity has directly benefited
  • Unfulfilled conditions and other contingencies attaching to government assistance that has been recognised
• Transitional provisions for first-time adoption

  1. Comply with the disclosure requirements, where appropriate

  2. Either adjust its financial statements for the change in accounting policy in accordance with IAS 8 or apply the accounting provisions of the Standard only to grants or portions of grants becoming receivable or repayable after the effective date of the Standard
• This Standard becomes operative for financial statements covering periods beginning on or after


  1 January 1984