CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS (AE 14)

LEARNING MATERIAL

UNIT NUMBER / HEADING: UNIT 1 - MODULE 5.2 / IAS 20 - Accounting

for Government Grants and Disclosure of Government Assistance

INTRODUCTION

IAS 20, par. 3, defines government grant as assistance by government in the

form of transfer of resources to an entity in return for part or future
compliance with certain conditions relating to the operating activities of the
entity.

LEARNING OUTCOMES

At the end of the unit, students will be able to

 Define a government grant
 Explain how government grants are recognized
 Identify the classifications of a government grant
 Properly account for government grant transactions
  Differentiate government grant from government assistance

PRESENTATION OF CONTENTS

RECOGNITION AND MEASUREMENT

Government grant shall be recognized when there is a reasonable assurance
that:
a. The entity will comply with the conditions attaching to the grant.
b. The grant will be received.
Government grant shall not be recognized on a cash basis as this is not
consistent with generally accepted accounting practice.
Classification of government grant

Grant related to asset – grant whose primary condition is that an entity

qualifying for the grant shall purchase, construct or otherwise acquire long
term asset
Grant related expenditure/income - grant other than grant related to
asset
Accounting for government grant
Government grant is taken to income over one or more periods in which the
related cost is incurred.
Special rules on accounting for government grant:

 Grant in recognition of specific expenses shall be recognized as income

over the period of the relate expense.

 Grant related to depreciable assets shall be recognized as income over

the periods and in proportion to the depreciation of the related asset.

 Grant related to nondepreciable asset requiring fulfillment of certain

conditions shall be recognized as income over the periods which bear
the cost of meeting the conditions.

 A government grant that becomes receivable as compensation for

expenses or losses already incurred or for the purpose of giving
immediate financial support to the entity with no further related costs
shall be recognized as income of the period in which it becomes
receivable.

Presentation of government grant

1. Government grant relate to asset shall be presented in the statement
of financial position in either of two ways:

a. By setting the grant as deferred income

b. By deducting the grant in arriving at the carrying amount of the

asset.

2. Government grant related to income is presented as follows:

a. The grant is presented in the income statement, either separately

or under the general heading “other income.”

b. Alternatively, the grant is deducted from the related expense

Government assistance
Government assistance is the action by government designed to provide an
economic benefits specific to an entity or range of entities qualifying under
certain criteria.
The essence of government assistance is that no value can reasonably be
placed upon it. Examples include:
a. Free technical or marketing advice
b. Provision of guarantee
c. Government procurement policy that is responsible for a portion of the
entity’s sales.

Disclosures about government grant:

a. The accounting policy adopted for the government grant, including the
method of presentation adopted in the financial statements.

b. The nature and extent of government grant recognized in the financial

statements and an indication of other forms of government assistance
from which the entity has directly benefited.

c. Unfulfilled conditions and other contingencies attaching to

government assistance that has been recognized.