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
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
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
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.
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
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