IAS 20 Accounting for Government Grants and Disclosure of Government Assistance

Government Grants are transfers of resources to an entity in return for past or future compliance with certain conditions. They exclude assistance that cannot be valued and normal trade with governments.

Government Assistance is a ‘government action’ designed to provide an economic benefit to a specific entity. It does not include indirect help such as infrastructure development.

Recognition :

IAS 20 says that government grants should not be recognised until the conditions for the receipt have been complied with and there is reasonable assurance that the grant will be received.

Grants should be matched with the expenditure towards which they are intended to contribute in the statement of profit or loss:

• Income grants given to subsidise expenditure should be matched to the related expenses.

• Income grants given for non-financial objectives should be matched to expenses incurred for achieving those specific objectives.

Grants related to assets :

Grants for purchases of non-current assets should be recognised over the expected usefulness of the related assets. There are two acceptable accounting policies to do this as per IAS 20 and they are as follows:

• Deduct the grant from the cost of the asset and depreciate the net costs

• Treat the grant as a deferred income and release to SOPL over the life of the asset.

Repayments :

• Income-based grants:
  Firstly, DR. > Any Liability for the Deferred Income.
  Second, Any Excess > Charge to SOPL.

• Capital-based grants deducted form cost:
  Firstly, increase the cost of the assets with the repayment.
  I.E. DR. PPE
  CR. Cash
  Second, the amount of depreciation will also increase as it should have been higher. So, recognise and charge immediately!

• Capital-based grants treated as deferred income:
  Firstly, DR. > Any Liability for the Deferred Income.
  Second, Any Excess > Charge to SOPL.

Government Assistance :

These are assistance provided by the government through advice, procurement policies and similar methods. These are very hard to quantify so they are not recognised in the financial statements.

Disclosure :

• The accounting policy and the presentation method used

• Nature of the government grants recognised in financial statements

• Unfulfilled conditions relating to governments grants which have been recognised.