IAS-20 ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT ASSISTANCE
To prescribe the accounting for, and disclosure of, government grants and other forms of government assistance.
IAS 20 applies to all government grants and other forms of government assistance. However, it does not cover government assistance that is provided in the form of benefits in determining taxable income. It does not cover government grants covered by IAS 41 Agriculture, either. The benefit of a government loan at a below-market rate of interest is treated as a government grant.
Government refers to government, government agencies and similar bodies whether local, national or international.
Government assistance is provision of economic benefits by government to a specific entity or range of entities which meet specific criteria. Government assistance for the purpose of this Standard does not include benefits provided only indirectly through action affecting general trading conditions, such as the provision of infrastructure in development areas or the imposition of trading constraints on competitors.
Government grants are transfer of resources to an entity, from government, in return for compliance with certain conditions.
It is the 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. 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 (subsidies, subvention, or premiums).
A government grant is recognized only when there is reasonable assurance that
The entity will comply with any conditions attached to the grant The grant will be received.
The grant is recognised as income over the period necessary to match them with the related costs, for which they are intended to compensate, on a systematic basis.
Non-monetary grants such as land or other resources, are usually accounted for at fair value, although recording both the asset and the grant at a nominal amount is also permitted.
Assistance without conditions
Even if there are no conditions attached to the assistance specifically relating to the operating activities of the entity (other than the requirement to operate in certain regions or industry sectors), such grants should not be credited to equity.
Compensation of already incurred costs
A grant receivable as compensation for costs already incurred or for immediate financial support, with no future related costs, should be recognised as income in the period in which it is receivable.
GRANT RELATED TO ASSET
Grant related to depreciable assets are recognized over the useful life of the assets in the proportion of depreciation charge.
Grant related to non-depreciable assets are also recognized over the period in which related expenses are made.
If grants are received as a package of financial or fiscal aids to which a number of conditions are attached then reasons giving rise to costs and expenses should be identified and it may be appropriate to allocate part of grant on one basis and part on another basis.
Presentation of grant related to asset
A grant relating to assets may be presented in one of two ways:
- As deferred income, or
- By deducting the grant from the asset’s carrying amount.
GRANT RELATED TO INCOME
Such grants are recognized over the period and matched with the related expenses.
Presentation of grant related to income
A grant relating to income may be reported separately as ‘other income’ or deducted from the related expense.
- If the conditions of a grant are breached, it may need to be repaid.
- A government grant that becomes repayable shall be accounted for as a revision to an accounting estimate (IAS –8).
- Repayment of a grant related to income shall be applied first against any un-amortized deferred credit and if repayment exceeds the deferred credit the rest will be recognized immediately as expense.
- Repayment of grants related to assets shall be recorded by increasing the carrying amount of the asset or reducing the deferred income balance by the amount payable. The cumulative additional depreciation that would have been recognized to date as an expense in the absence of the grant shall be recognized immediately as an expense.
The following must be disclosed:
- Accounting policy adopted for grants, including method of statement of financial position presentation
- Nature and extent of grants recognized in the financial statements
- Unfulfilled conditions and contingencies attaching to recognized grant
Government grants do not include government assistance whose value cannot be reasonably measured, such as technical or marketing advice.
The government grants are not recognized because no value can be assigned to them or they are not distinguishable from the other transactions of the entity if material shall be disclosed.