Accounting For Government Grants and Disclosure of Government Assistance

Accounting for Government Grants and
Disclosure of Government Assistance
IAS 20
Accounting for Government Grants and
Disclosure of Government Assistance
• Related standards
• IAS 20
• Looking ahead
2
Related Standards
• IAS 41 Agriculture
• IAS 37 Provisions, contingent liabilities and
contingent assets
3
IAS 20 - Overview
• Objective and scope
• Accounting for government grants
• Government assistance
• Disclosure
4
IAS 20 – Objective and
Scope
• Government grant: a form of government
assistance; a transfer from a government to an
entity that requires compliance with certain
conditions related to entity’s operating
activities.
• Government assistance: government action to
generate an economic benefit for entities that
meet qualifying criteria.
5
IAS 20 – Objective and Scope
• Excludes benefits provided by adjusting
taxable profit or loss, or that are determined
on the basis of the income tax liability - such
as investment tax credits, income tax holidays,
accelerated tax depreciation methods and
reduced income tax rates
6
IAS 20 – Accounting for Government
Grants
Recognition and Measurement:
• Recognize a government grant when there is

reasonable assurance that
1. The grant will be received, and
2. The entity will comply with the conditions
attached to the grant
7
Grants
Two general approaches:
1. Capital approach
2. Income approach * Apply this one *
* Grants from government are not equity

financing, they are non-shareholder-related
increases in net assets and therefore items
of income.
8
Grants
• Income approach: recognize government
grants in profit or loss in the same periods
that the related expenses are recognized
• If for acquisition of assets – on the same basis
as the depreciation on the assets
• If related directly to incurring specific
expenditures – on the same basis as the
expenditures
9
Grants
Presentation of grants related to assets:
• Companies have a choice – recognize as (a)
deferred income or (b) as a reduction in the
carrying amount of the related asset
• Example: Company A receives a $25 grant
toward the purchase of new equipment that
cost $100; equipment has a five year life and
is depreciated on a straight-line basis
10
Grants
• Entry when grant received:
(a)
Dr. Cash 25
Cr. Deferred government grant 25
Or
(b)
Dr. Cash 25
Cr. Equipment 25
11
• Entry as asset is used: Grants
(a)
Dr. Depreciation expense 20
Cr. Accumulated depreciation 20
Dr. Deferred government grant 5
Cr. Depreciation expense/grant income 5
Or
(b)
Dr. Depreciation expense 15
Cr. Accumulated depreciation 15
Depreciation: ($100 - $25) ÷ 5 = 15
12
Grants
Presentation of grants related to income:
• Example: Company B receives a government
grant equal to 10% of the payroll costs
incurred. Payroll costs incurred are $100.
• Entry when payroll costs incurred:
Dr. Grant receivable 10
Cr. Wages expense/grant income 10
13
Grants
Repayment of grants:
• If grant becomes repayable – treat as a change
in estimate
• If related to an asset: cumulative amount of
additional depreciation that would have been
recognized to date is recognized in P&L
• If related to income: any necessary
adjustments are made to current year profit
or loss
14
IAS 20 – Government Assistance
• Grants exclude assistance that cannot
reasonably be valued, and transactions
between the government and the entity that
are in the normal course of business.
• Other assistance (e.g., guarantee of loan,
significant sales) may be of interest to
financial statement readers if benefits are
significant and recurring
15
IAS 20 Disclosure
• Three types:
1. Accounting policy for grants and their
presentation
2. Nature and extent of grants recognized, and
information about other forms of assistance
that have been beneficial
3. Information about contingencies or
conditions not yet met related to assistance
recognized
16
Looking Ahead
• IAS 20 – part of short-term convergence
project with FASB. IAS 20 shortcomings:
1. Inconsistent with the conceptual framework
(deferred credits do not meet the definition of
a liability)
2. Option allowed now understates an entity’s
assets, reducing comparability of the entity’s
financial statements (i.e., option to deduct
grant from asset acquired)
17
Looking Ahead
• Work on amending IAS 20 set aside pending
outcome of related standards, such as IAS 37
Provisions, Contingent Liabilities and
Contingent Assets and Conceptual Framework
Project
18

Accounting For Government Grants and Disclosure of Government Assistance

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Accounting For Government Grants and Disclosure of Government Assistance

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Accounting for Government Grants and

Disclosure of Government Assistance

• Recognize a government grant when there is

* Grants from government are not equity

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