IAS 2 Inventories
IAS 7 Statement of cash flows – Revisited
IAS 33 Earnings per share – Revisited
IAS 20 Overview
In many countries the government provides grants to industry. The most common form of such grants is cash from local or national government, other examples may include subsidies, premium etc. They may receive other types of assistance which may be in many forms. The IAS 20 government grants IFRS with summary is as follows:
Government grants – Assistance by government in the form of transfer of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.
Government assistance – Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria.
Grants related to assets – Government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire non-current assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.
Grants related to Income – Government grants other than those related to assets.
Forgivable Loans – Loans for which the lender undertakes to waive repayment under certain prescribed conditions.
Recognition of Government grants
An entity should NOT recognize government grants (including non-monetary grants at fair value), until it has reasonable assurance that:
- The entity will comply with any conditions attached to the grant
- The entity will actually receive the grant
It makes no difference in the treatment of the grant whether it is received in cash or given as a reduction in a liability to government.
Any related contingency should be recognized under IAS 37, once the grant has been recognized.
Accounting treatment of Government grants
Grants related to Income
For grants related to income, IAS 20 Government grants states that an ‘income approach’ should be used, and the grant should be taken to income over the periods necessary to match the grant with the costs that the grant is intended to compensate. IAS 20 allows two methods of doing this:
- Method – 1 Include the grant for the period as ‘other income’ for inclusion in profit or loss for the period; or
- Method – 2 Deduct the grant for the period from ‘related expense’
Grants related to Assets
For grants related to assets, IAS 20 allows two methods of doing this:
- Method – 1 Deduct the grant from the cost of the related asset. The asset is included in the statement of financial position at cost minus the grant. Depreciate the net amount over the useful life of the asset.
- Method – 2 Treat the grant as ‘Deferred Income’ and recognize it as income on a systematic basis over the useful life of the asset.
Repayment of Government grants
If a grant must be repaid it should be accounted for as a revision of an accounting estimate in accordance with IAS 8.
- Repayment of a grant related to Income – apply first against any unamortized deferred income set up in respect of the grant, any excess should be recognized 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 recognized to date in the absence of the grant should be immediately recognized as an expense.
- Some forms of government assistance cannot reasonably have a value placed on them, for example free technical or marketing advice, provision of guarantees.
- There are transactions with government which cannot be distinguished from the entity’s normal trading transaction, for example government procurement policy resulting in a portion of the entity’s sales.
Therefore, Disclosure of such assistance may be necessary because of its significance. Its nature, extent and duration should be disclosed. Loans at low or zero interest rates are a form of government assistance.
IAS 20 Government grants and disclosure of Government Assistance Disclosure Requirements
Disclosure is required of the following.
- Accounting policy – adopted, including method of presentation
- Nature and extent – of government grants recognized and other forms of assistance received
- Unfulfilled conditions and other contingencies – attached to recognized government assistance.
IAS 20 PDF
IAS Government grants with examples is available in PDF version. Moreover, click here to DOWNLOAD IAS 20 accounting for government grants and disclosure of government assistance PDF