NATIONAL UNIVERSITY

JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

PAS 20 GOVERNMENT GRANT

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANTARDS
PREPARED BY: Aguiluz, Kc Nicole L.

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Introduction:
Pas 20, paragraph 3, defines government grant as 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.

Recognition:
Government grants, including non-monetary grants at fair value, shall not be recognized until
there is reasonable assurance that:

 The entity will comply with the conditions attaching to them; and
 The grant will be received.

Classification
GRANT RELATED TO ASSETS GRANT RELATED TO INCOME

whose primary condition is that an entity Grants other than related assets
qualifying for them should purchase, construct
or otherwise acquire long-term assets.

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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

Accounting:
GRANT RELATED TO ASSETS GRANT RELATED TO INCOME

Recognize income over the periods and in the Should be deferred and recognized as income in
proportions in which the depreciation on those the same period as the relevant expense.
assets is charged or over the periods which bear
the cost of meeting obligations

 For example, you depreciate the asset

for 5 years then the income related to
the government grant is to be recognized
over 5 years also.

MATCHING CONCEPT:

 In grant related to assets you will going to match the income over the depreciation.
 In grant related to income you will going to match it to the relevant expense.

Presentation:
GRANT RELATED TO ASSETS GRANT RELATED TO INCOME

Either by setting up the grant as deferred income
or by deducting the grant in arriving at the
carrying amount of the asset.
 If you will use the deferred income, it is a
GROSS METHOD.
 If you will deduct the carrying amount of
the asset, it is a NET METHOD.
Either separate income or under a general
heading such as ‘Other Income” or deducted in
reporting the related expenses.
 You will still going to use GROSS or NET
method.

Repayment:
GRANT RELATED TO ASSETS GRANT RELATED TO INCOME

Increase the carrying amount of the asset or Apply first against any unamortized deferred
reduce the deferred income balance. The income, or where no deferred income exists,
cumulative additional depreciation that would recognize immediately as expense.
have been recognized to date as an expense in
the absence of the grant should be recognize
immediately as an expense.

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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

EXAMPLE: Grant related to Asset

Loisa Company purchased a polishing machine for P6,000,000 on January 1, 2019 and
received a government grant of P600,000 towards the capital cost. The machine was to be depreciated
on a straight-line basis over 10 years and was estimated to have a residual value of P500,000 at the end
of this period.

a. Compute for the income from government grant that will be recognized at the end of 2019 if the
grant is initially treated as deferred income.
b. Compute for the depreciation expense that will be recognized at the end of 2019 if the grant is
initially treated as reduction of the machine’s cost.
c. Compute for the depreciation expense that will be recognized at the end of 2021 if the grant
became payable on January 1, 2021. Assume that the grant is initially treated as reduction of the
machine’s cost.

ANSWER:

a. Depreciation as deferred income

Initial cost P6,600,000
Less: Residual Value 500,000
Depreciable cost 6,100,000
Divide: Useful Life /10 years
Depreciation P 610,000

Income from government grant (600,000/10 years) P60,000

Total effect on Profit/Loss(610,000-60,000) P550,000

b. Depreciation as reduction to cost

Initial cost (6,600,000-600,000) P6,000,000
Less: Residual Value 500,000
Depreciable cost 5,500,000
Divide: Useful Life /10 years
Depreciation P550,000

Income from government grant (600,000/10) NONE

 Because you didn’t recognized any deferred income.

Total effect on Profit/Loss P550,000

c. Depreciation, repayment in 2021, initially treated as reduction of machine’s cost.

Initial cost (6,600,000-600,000) P6,000,000
Less: Accumulated Depreciation ’19-’20 1,100,000
Carrying Amount, 1/1/2021 4,900,000
Add back: Repayment of grant 600,000
5,500,000

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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

Less: Residual Value 500,000

Depreciable Cost 5,000,000
Remaining life / 8years
Depreciation, 2021 P625,000

SOURCES:

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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

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