Objective: IAS 20 prescribes the accounting for, and disclosure of, government grants and other forms of government assistance.
- Applies to all government grants and other forms of government assistance
- Does not apply to special problems arising in reflecting the effects of changing prices
- Excludes government assistance that cannot reasonably have a value placed upon it
Government Grants: Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions.
Government Assistance: Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria.
Forgivable Loans: Loans which the lender undertakes to waive repayment under certain prescribed conditions.
- Grants Related to Assets: For purchase, construction, or acquisition of long-term assets
- Grants Related to Income: For immediate financial support or reimbursement of expenses
| Principle | Description |
|---|---|
| Recognition Criteria | Recognize when there is reasonable assurance that entity will comply with conditions and grants will be received |
| Matching Principle | Recognize grants in income systematically over periods necessary to match them with related costs |
| No Immediate Credit | Grants should not be credited directly to shareholders' interests |
Note: Government grants are recognized only when there is reasonable assurance, not merely when application is made.
Capital Approach (Asset Grants):
Method 1: Recognize grant as deferred income and amortize to income over asset's life
Method 2: Deduct grant from asset's carrying amount
Income Approach (Income Grants):
Recognize in income on a systematic basis matching with related expenses
Scenario: Company receives $1,000,000 grant for building costing $5,000,000 with 20-year life
Method 1 (Deferred Income):
• Building: $5,000,000
• Deferred income: $1,000,000
• Annual amortization: $50,000 to income
Method 2 (Deduct from Asset):
• Building: $4,000,000
• Annual depreciation: $200,000
- Non-monetary Grants: Record at fair value or nominal amount
- Forgivable Loans: Treated as government grants when forgiveness assured
- Repayment of Grants: Treated as change in accounting estimate
- Conditions Not Met: Account for repayment as extraordinary item if applicable
- Interest Subsidies: Reduce interest expense in period incurred
| Category | Disclosure Requirements |
|---|---|
| Accounting Policy | Methods of accounting for grants, presentation in financial statements |
| Government Grants | Nature and extent of grants, unfulfilled conditions, contingencies |
| Balance Sheet | Presentation of grants related to assets and income |
| Income Statement | Effect of grants on financial performance |
| Other Assistance | Nature, extent, and duration of other forms of government assistance |
- Grants Related to Assets: Presented in balance sheet either as deferred income or deducted from asset cost
- Grants Related to Income: Presented as separate credit in income statement or deducted from related expense
- Repayment of Grants: Related to asset: increase carrying amount or reduce deferred income balance
- Consistency: Apply same presentation method for all grants of similar nature