Objective
IAS 20 prescribes the accounting and disclosure requirements for government grants and other forms of government assistance to ensure that financial statements reflect the effects of government support on an entity’s financial performance and position.
Government grants are transfers of resources from government in return for past or future compliance with conditions, not in exchange for goods or services at market terms.
🧾 1. Scope
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Applies to all government grants and assistance, except:
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Grants related to income taxes (IAS 12)
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Government participation in a joint arrangement or business combination
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Grants can be monetary or non-monetary, conditional or unconditional.
💡 2. Key Definitions
| Term | Meaning |
|---|---|
| Government Grant | Transfer of resources from government for which no direct repayment is required. |
| Capital Grant | Grant related to assets, e.g., building, equipment. |
| Income Grant | Grant related to income or expense support, e.g., subsidies, wage support. |
| Repayable Grant | Becomes liability if conditions not met. |
⚙️ 3. Recognition Principles
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Recognize grant only when:
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Reasonable assurance that entity will comply with conditions
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Grant will be received
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Grants can be accounted for using two approaches:
A. Grants Related to Assets (Capital Grants)
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Reduce the asset’s carrying amount (“net of grant”)
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Cost of asset = cost less grant
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Example 1 – Capital Grant:
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Government grant received to buy machinery = $50,000
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Machinery cost = $200,000
Machinery recorded at $150,000; grant reduces asset cost.
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Deferred Income Approach
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Record grant as liability, recognize in P/L over asset’s useful life
B. Grants Related to Income (Revenue Grants)
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Recognized as income over periods necessary to match costs
Example 2 – Revenue Grant:
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Government grant to subsidize salaries = $30,000
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Salaries expense for period = $30,000
Grant offsets related expense in the same period.
C. Non-Monetary Grants
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Recognize asset and grant at fair value, or nominal value if fair value not reliably measurable.
Example 3 – Free Land
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Land provided by government → fair value $100,000
D. Repayable Grants
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Recognize as liability if conditions for repayment exist.
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Account as a change in accounting estimate (IAS 8) if repayment becomes probable.
🔄 4. Presentation
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Grants related to assets:
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Deducted from asset carrying amount or shown as deferred income
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Grants related to income:
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Shown separately in profit or loss or deducted from related expense
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🧩 5. Disclosure Requirements
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Accounting policy for government grants
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Nature and extent of grants recognized
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Unfulfilled conditions and contingencies
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Grants related to assets: deferred income or net asset amount
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Grants recognized in P/L
Example Disclosure:
“During the year, the entity received a government grant of $50,000 for the purchase of machinery, recognized as deferred income to be amortized over 5 years. No grants were repayable as of year-end.”
📊 6. Summary Table
| Type of Grant | Recognition | Example | Accounting Treatment |
|---|---|---|---|
| Capital Asset | Reduce asset cost or deferred income | Machinery $200k, grant $50k | Net asset $150k or deferred income $50k |
| Income Grant | Recognize in income over related expense | Salary subsidy $30k | Offset salaries expense |
| Non-monetary | Recognize at fair value | Free land $100k | Dr Land 100k / Cr Grant Income 100k |
| Repayable | Recognize liability if repayment probable | Grant repayable $20k | Dr Cash 20k / Cr Liability 20k |
🎯 7. Key Points
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Recognize grants only when reasonable assurance exists
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Differentiate between asset grants and income grants
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Non-monetary grants recognized at fair value
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Repayable grants treated as liabilities
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Proper disclosure of nature, extent, and conditions is required