Government Grants & Government Assistance

 RELATED STANDARD: IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance

 Definition of Terms
Government – refers to government, government agencies and similar bodies whether local, national or international.
Government assistance – is action by government designed to provide an economic benefit specific to an entity or
range of entities qualifying under certain criteria.
Government grants – are 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.
Grants related to assets – are government grants whose primary condition is that an entity qualifying for them should
purchase, construct or otherwise acquire long-term assets.
Grants related to income – are government grants other than those related to assets.
Forgivable loans – are loans which the lender undertakes to waive repayment of under certain prescribed conditions.
Fair value– is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. (See IFRS 13 Fair Value Measurement.)

 Scope
 IAS 20 applies to all government grants and other forms of government assistance.
 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.
 The benefit of a government loan at a below-market rate of interest is treated as a government grant.

 Classification of Government Grants

1. Grants related to assets
2. Grants related to income

 Recognition
 A government grant is recognized only when there is reasonable assurance that
a. The entity will comply with any conditions attached to the grant; and
b. The grant will be received

 Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to the grant
have been or will be fulfilled.

 The grant is recognized as income over the period necessary to match them with the related costs, for
which they are intended to compensate, on a systematic basis.
 Thus grants in recognition of specific expenses are recognized in profit or loss in the same period
as the relevant expenses.
 Grants related to depreciable assets are usually recognized in profit or loss over the periods and in
the proportions in which depreciation expense on those assets is recognized.
 Grants related to non-depreciable assets may also require the fulfilment of certain obligations and
would then be recognized in profit or loss over the periods that bear the cost of meeting the
obligations.
 A grant receivable as compensation for costs already incurred or for immediate financial support,
with no future related costs, should be recognized as income in the period in which it is receivable.
 Grants are sometimes received as part of a package of financial or fiscal aids to which a number of
conditions are attached. It may be appropriate to allocate part of a grant on one basis and part on
another.

 Measurement
 All government grants shall be measured at fair value of the grants received or receivable.
 A government grant may take the form of a transfer of a non-monetary asset. In these circumstances it is
usual to assess the fair value of the non-monetary asset and to account for both grant and asset at that fair
value. An alternative course that is sometimes followed is to record both asset and grant at a nominal
amount.
 Presentation
 A grant relating to assets may be presented in one of two ways
1. Deferred income
2. Deduction from the asset's carrying amount

 A grant relating to income may be reported separately as

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Government Grants & Government Assistance

1. Other income
2. Deduction from the related expense.

 Repayment of Government Grants

 If a grant becomes repayable, it should be treated as a change in estimate.
 Where the original grant related to income:
 The repayment should be applied first against any related unamortized deferred credit, and
 Any excess should be dealt with as an expense.
 Where the original grant related to an asset
 The repayment should be treated as increasing the carrying amount of the asset or reducing the
deferred income balance.
 The cumulative depreciation which would have been charged had the grant not been received should
be charged as an expense.

 Disclosure of Government Grants

1. Accounting policy adopted for grants, including method of balance sheet presentation.
2. Nature and extent of grants recognized in the financial statements.
3. Unfulfilled conditions and contingencies attaching to recognized grants.

 Government Assistance
 Excluded from the definition of government grants are certain 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.
 Examples of assistance:
a. Free technical or marketing advice
b. Provision of guarantees.
c. Government procurement policy that is responsible for a portion of the entity’s sales.
 The significance of the benefit in the above examples may be such that disclosure of the nature, extent and
duration of the assistance is necessary in order that the financial statements may not be misleading.
 Government assistance for the purpose of this Standard does not include benefits provided only indirectly
through action affecting general trading conditions, such as:
a. Provision of infrastructure by improvement to the general transport and communication network
b. Supply of improved facilities such as irrigation or water reticulation which is available on an ongoing
indeterminate basis for the benefit of an entire local community.
c. Imposition of trading constraints on competitors

 Difference between IFRS for SMEs and Full IFRS

Full IFRS
Accounting model depends on whether it relates to
expenses and assets.
Grants related to asset may be deducted from the
carrying amount of the asset.
Accounting policy must be disclosed
IFRS for SMEs
A different model is applied for the accounting of
government grants based on future performance
No provision that grants may be deducted from the
carrying amount of the asset.
Accounting policy disclosure is not required

 Government Grants and Government Assistance

o Subsidies received from the national government to be used exclusively for the construction of flood
control facility.
o Technical feasibility advice provided by DOST as support to the IT companies built in Visayan region.
o Guarantee provided by BSP to rural banks engaged in international financing activities.
o Road improvements made by DPWH that results in the increase of the fair values of the companies
real properties.
o Licensing agreement gratuitously provided by the national government for mining companies for the
exclusive rights to conduct operation in Benguet for 10 years.
o Immediate financial assistance provided to private hospitals by LGUs as aid for the aftermath of a
calamity.

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