IAS 20 - Government Grants

• Government Assistance

  Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria
• Government grants

  Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity
• Government assistance excluded from the definition

  • Free technical advice
  • Marketing advice
  • Provision for guarantees
• Recognition of government grants

  • There must be reasonable assurance that the entity will comply with any conditions attached to the grant and the entity will actually receive the grant
• Recognition of government grants

  Income approach - recognised in profit or loss over the periods in which the entity recognises as expenses the costs which the grants are intended to compensate
• Revenue grants


  Grants matched with the expenditure they are intended to compensate or with the identifiable costs of achieving a non-financial objective
• Revenue grants are presented as a credit in the statement of profit or loss or deducted from the related expense
• Revenue grant example


  • An entity is given $300,000 on 1 January 20X1 to keep staff employed within a deprived area. The grant should be released over three years, meaning that $100,000 is taken to the statement of profit or loss each year.
• Capital grants


  IAS 20 permits two treatments: 1) Write off the grant against the cost of the non-current asset and depreciate the reduced cost, 2) Treat the grant as a deferred credit and transfer a portion to revenue each year, so offsetting the higher depreciation charge on the original cost
• Accounting for a series of conditions in government grants


  Identify precisely those conditions which give rise to costs which in turn determine the periods over which the grant will be earned, and when appropriate, split the grant and allocate the parts on different bases
• The grant should be recognised in profit or loss in the period in which it becomes receivable
• Non-monetary government grants


  The fair value of such an asset is usually assessed and this is used to account for both the asset and the grant
• Other types of government assistance may include the provision of interest-free loans or guarantees, which should be disclosed in the notes to the accounts