Scribd
Upload
14 views12 pages

Ias 20

Government grants are transfers of resources to entities that must comply with certain conditions. Grants are recognized as income over the periods necessary to match them with the related costs which they are intended to compensate. Capital grants related to assets reduce the asset's carrying amount. Grants are initially recorded as deferred income and then recognized as income over the asset's useful life. Repayment of grants related to income are applied first to any deferred income and any excess as an expense. Repayment tied to an asset increases the asset amount or reduces deferred income by the amount repayable plus additional depreciation from the grant. Disclosures include accounting policies, nature of recognized grants, and unfulfilled conditions.

Uploaded by

Reever River
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
14 views12 pages

Ias 20

Government grants are transfers of resources to entities that must comply with certain conditions. Grants are recognized as income over the periods necessary to match them with the related costs which they are intended to compensate. Capital grants related to assets reduce the asset's carrying amount. Grants are initially recorded as deferred income and then recognized as income over the asset's useful life. Repayment of grants related to income are applied first to any deferred income and any excess as an expense. Repayment tied to an asset increases the asset amount or reduces deferred income by the amount repayable plus additional depreciation from the grant. Disclosures include accounting policies, nature of recognized grants, and unfulfilled conditions.

Uploaded by

Reever River
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 12

Accounting for Government

Grants and Disclosure of


Government Assistance
IAS - 20
Definition
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.
They may be categorized as either:
◦ Capital grants i.e. those grants which are made to contribute towards the acquisition of an asset
◦ Revenue grants i.e. those grants which are made for other purposes such as the payment of wages

Government assistance is government action designed to provide an economic benefit to a


specific entity. It does not include indirect help such as infrastructure development.
Government assistance helps businesses through advice, procurement policies and similar
methods. It is not possible to place reliable values on these forms of assistance, so they are
not recognised in the financial statements.
Recognition of government grants
A grant is recognised in the financial statements only when there is reasonable assurance
that:
◦ The entity will comply with the conditions attached to the grant, and
◦ The grants will be received

The grant should be recognised in the Statement of Pofit or Loss in the period in which the
expenditure towards which it was intended to contribute is recognised.
Accounting for revenue grants
The receipt of a revenue grant is recorded by:
◦ Dr Cash
Cr Deferred income (liability)
The grant held as deferred income is then released to the Statement of Pofit or Loss over
the period in which the related expenditure is incurred:
Revenue grants which are made to subsidise specific expenditure are recognised in the
Statement of Pofit or Loss in the period in which that expenditure is recognised.
Revenue grants which are made to held achieve a non-financial goal are recognised in the
Statement of Pofit or Loss in which the costs of meeting that goal are recognised.
◦ Dr Deferred Income (Amortised over the period)
Cr P or L
The credit to the income statement may be:
◦ presented as a separate item of income; or
◦ deducted from the related expense which is then shown net.
Example
A company is given $300,000 on 1 January 20X1 to keep staff employed within a deprived area.
The company must not make redundancies for the next three years, or the grant will need to be
repaid.
◦ Dr Cash $300,000
Cr Deferred income (liability) $300,000
By 31 December, 20X1, no redundancies have taken place and none are planned.
The grant should be released over three years, meaning that $100,000 is taken to the statement
of profit or loss each year.
◦ Dr Deferred Income $100,000
Cr P or L $100,000
This can be shown as a separate line in the statement of profit or loss or deducted from
administrative expenses (or wherever the staff costs are charged).
As $100,000 has been released to the statement of profit or loss, the remaining $200,000 will be
held in deferred income, to be recognized over the next two years.
Of this, $100,000 will be released within a year so will be held within current liabilities. The
remaining $100,000 will be held as a noncurrent liability.
Accounting for Capital grants
IAS 20 allows two treatments with regard to the recognition of a capital grant:

Deduct grant from cost of the non- Record grant separately as deferred
current asset to which it relates income.
Dr Cash Dr Cash
Cr Non-current asset Cr Deferred income
Cost XXX
Less: Grant (XXX)
Net Cost XXX
Depreciate the net cost of the non-current asset Release the deferred income to the SPL over the
over its useful life. useful life of the non-current asset.
Therefore both the grant and the full cost of the Dr Deferred Income
non-current asset are spread over the useful life Cr P or L
of the asset.
Note that where the grant is recognised as deferred income in the statement of financial position, this amount
will be split between current and non-current liabilities.
Example
An entity opens a new factory and receives a government grant of $15,000 in respect of
capital equipment costing $100,000. It depreciates all plant and machinery at 20% pa
straight-line.
Show the statement of profit or loss and statement of financial position extracts in respect
of the grant in the first year under both methods.
Method 1: Deduct from asset (Net Cost
Method)
Statement of profit or loss extract $
Depreciation (17,000)

Statement of financial position extract $


Noncurrent assets
Plant & machinery (100,000 – 15,000) 85,000
Accumulated depreciation (85,000 × 20%) (17,000)
CV 68,000
Method 2: Treat grant as deferred income
Statement of profit or loss extract $
Depreciation (below) (20,000)
Government grant credit (W1) 3,000

Statement of financial position extract $


Noncurrent assets
Plant & machinery 100,000
Accumulated depreciation (100,000 × 20%) (20,000)
CV 80,000
Noncurrent liabilities
Government grant (12,000 (W1) – 3,000 (current liability)) 9,000
Current liabilities
Government grant (15,000 × 20%) 3,000
Grants to reimburse previously incurred
Costs
Grants which relate to costs already incurred should be recognised in the income statement
in the period in which they become receivable.
Repayment of government grants
In some cases grants may need to be repaid if the conditions of the grant are breached. If a
grant must be repaid it should be accounted for as a revision of an accounting estimate.
Repayment of a grant related to income: apply first against any unamortised deferred
income set up in respect of the grant; any excess should be recognised immediately as an
expense.
Repayment of a grant related to an asset: increase the carrying amount of the asset or
reduce the deferred income balance by the amount repayable. The cumulative additional
depreciation that would have been recognised to date in the absence of the grant should be
immediately recognized as an expense.
It is possible that the circumstances surrounding repayment may require a review of the
asset value and an impairment of the new carrying amount of the asset.
Disclosures
IAS 20 requires the following disclosures:
◦ the accounting policy and presentation methods adopted
◦ the nature of government grants recognised in the financial statements
◦ unfulfilled conditions relating to government grants that have been recognised.

You might also like