IAS 20 Accounting for Government Grants and Disclosure of Government Assistance

Objective

Explains when and how to recognise government grants and what to disclose about other forms of government assistance.

Grants from government (including government agencies and similar bodies), and disclosure of other government assistance.
Excludes government assistance provided through income tax benefits and grants for biological assets at fair value less costs to sell (IAS 41).

Government grant: Assistance by government in the form of transfers of resources in return for past or future compliance with conditions relating to operating activities.
Grants related to assets: Grants whose main condition is that the entity buys, builds or otherwise acquires long-term assets.
Grants related to income: Grants other than those related to assets.
Forgivable loan: A loan where the lender undertakes to waive repayment under prescribed conditions.

Recognise only when there is reasonable assurance that the entity will comply with the conditions and that the grant will be received.
Recognise in profit or loss on a systematic basis over the periods in which the related costs are expensed (never directly in equity).
A grant compensating for expenses already incurred, or for immediate financial support with no future costs, is recognised when it becomes receivable.
The benefit of a below-market-rate government loan is treated as a grant: the difference between proceeds and the loan's initial IFRS 9 carrying amount.
Non-monetary grants (e.g. land) are usually measured at fair value; a nominal amount is an alternative.

Grants related to assets: either deferred income released over the asset's life, or deducted from the asset's carrying amount (reducing depreciation).
Grants related to income: either presented as other income, or deducted from the related expense.
A grant that becomes repayable is a change in estimate; repay first against any unamortised deferred income, then expense the excess.

Cash received is not the trigger; reasonable assurance of compliance and receipt is.
A repayment is accounted for prospectively, not as a prior period error.
Under the deferred income method, the asset is depreciated on its full cost.

Scenario. An entity buys equipment for $100,000 and receives a $20,000 grant towards it. Useful life 5 years, nil residual value.

Deferred income method: depreciation 100,000 ÷ 5 = $20,000; grant released 20,000 ÷ 5 = $4,000 a year to income.
Netting method: asset recorded at 80,000; depreciation 80,000 ÷ 5 = $16,000 a year.

Answer: Net charge is $16,000 a year either way; only the presentation differs.

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ICAI CA Intermediate examines Indian Accounting Standards, which are based on but can differ from IFRS. Check your syllabus.