GOVERNMENT

GRANT
Full PFRS, PFRS for SMEs, PFRS for SE
DEFINITION

G OV E R N M E N T G R A N T

assistance by government in the form of transfer of resources

to an entity in return for past or future compliance with certain
conditions relating to the operating activities of the entity.
CLASSIFICATION
FULL P F R S PFRS for SMEs P F R S for SEs
(PAS 20) (SECTION 24) (SECTION 28)

Under PAS 20, government grants are

classified as either:

a. Grant related to assets

• This is government grant whose The PFRS for SMEs does not provide SAME as PFRS for SMEs
primary condition is that an entity such classifications.
qualifying for the grant shall
purchase, construct, or otherwise
acquire long term asset.

b. Grant related to income

• By residual definition, this is
government grant other than grant
related to asset.
RECOGNITION
FULL P F R S
(PAS 20)
Government grant, including
nonmonetary grant shall be
recognized when there is REASONABLE
ASSURANCE that:
a. The entity will comply with the
conditions attached 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 the generally accepted
accounting principles.
PFRS for SMEs P F R S for SEs
(SECTION 24) (SECTION 28)
Government grant are recognized
as follows:
a. A grant that does not impose specified
future performance conditions on the
recipient is recognized in income when
the grant proceeds are receivable. SAME as PFRS for SMEs
b. A grant that imposes specified future
performance conditions on the recipient
is recognized in income only when the
performance conditions are met.
c. A grant received before the revenue
recognition criteria are met is recognized
as liability.
RECOGNITION
FULL P F R S PFRS for SMEs P F R S for SEs

Government grant are recognized in
profit or loss on a systematic basis
necessary to match it with the related
cost for which the grant is intended to
compensate.
PFRS for SME does not allow an entity SAME as PFRS for SMEs
to match the grant with the related
expense or cost.

If the costs, for which the grant received

is intended to compensate, have
already been incurred, the government
grant is recognized in income at grant
recognition date.
COMPARISON
FULL P F R S PFRS for SMEs P F R S for SEs

1. A government grant is recognized A government grant is recognized when SAME as PFRS for SMEs
when there is a reasonable assurance the conditions are actually satisfied.
that the entity will comply with the
specified conditions.

2. A government grant is recognized in
income over the periods necessary to
match it with the related cost for which
it is intended to compensate, on a
systematic basis.
PFRS for SME does not allow an entity SAME as PFRS for SMEs
to match the grant with the related
expense or cost.

3. Grant related to asset is treated The grant is a deferred income until the SAME as PFRS for SMEs
either as deferred income or a conditions are actually satisfied.
reduction in the cost of the asset.
There are no such option under PFRS
for SMEs.
COMPARISON
FULL P F R S PFRS for SMEs P F R S for SEs

4. Grant related to income may be

reported separately as 'other income'
or deducted from the related expense.
There are no such option under PFRS
for SMEs.
MEASUREMENT
FULL P F R S
Monetary grants are measured:
a. Amount of cash received
b. Fair Value of amount receivable
Non-monetary grants are measured:
c. Fair Value of the non-monetary
asset received: or
d. Alternatively, at nominal amount or
zero, plus direct costs incurred in
preparing the assets for its intended
use.
PFRS for SMEs
Under the PFRS for SMEs,
government grants are measured
at the FAIR VALUE of the asset
received or receivable.
No alternative measurement basis is
provided under the PFRS for SMEs.
P F R S for SEs
SAME as PFRS for SMEs
However;
A government grant may take form of a
transfer of a non-monetary asset (such
as Land and other resources) for the
use of the entity. The entity should
make an accounting policy to either:
a. Not recognize the non-monetary
grant: or
b. Recognize the non-monetary grant
at FAIR VALUE
ILLUSTRATION 1 ( M AT C H I N C O M E W I T H T H E R E L AT E D C O S T )

An entity received a grant of 15,000,000 from the national government for the
purpose of defraying safety and environmental expenses over the period of 3
years.
The safety and environmental expense will be incurred by the entity as follows:

First year 2,000,000

Second year 3,000,000
Third year 5,000,000
10,000,000
ILLUSTRATION 1 ( M AT C H I N C O M E W I T H T H E R E L AT E D C O S T )

Accordingly, the grant of 15,000,000 is allocated as income over 3 years in

proportion to the costs incurred.

First Year
Cash 15,000,000
Deferred Grant Income 15,000,000

Deferred Grant Income 3,000,000

Grant Income 3,000,000
(2/10 x 15,000,000)
ILLUSTRATION 1 ( M AT C H I N C O M E W I T H T H E R E L AT E D C O S T )

Environmental Expenses 2,000,000

Cash 2,000,000

First Year (2/10 x 15,000,000) 3,000,000

Second Year (3/10 x 15,000,000) 4,500,000
Third Year (5/10 x 15,000,000) 7,500,000
15,000,000
ILLUSTRATION 2 ( G ra nt o f i nte re st- f re e l o a n )

To encourage entities to expand their operations in a specified development

zone, where it is difficult for entities to obtain financing for their projects, the
government provides interest-free loans to fund the purchase of manufacturing
equipment.

In accordance with the development scheme, an entity receives an interest-free

loan of 500,000 from the government for a period of three years by a
promissory note. The market rate of interest for similar loans is 5% per year (the
market rate of interest for a similar three-year loan to the entity).
There are no future performance conditions attached to the interest-free loan.
ILLUSTRATION 2 (Grant of interest-free loan)
Full PFRS PFRS for SMEs PFRS for SEs
INITIAL MEASUREMENT

Cash 500,000 Same as Full PFRS Same as Full PFRS

Discount on Note Payable 68,100
Note Payable 500,000
Deferred grant Income 68,100

Face Value 500,000

Present Value (500,000 x .8638) 431,900
Deferred grant income 68,100
ILLUSTRATION 2
Full PFRS PFRS for SMEs PFRS for SEs
At the end of Year 1

Interest Expense 21,595 Same as Full PFRS Same as Full PFRS

Discount on Note Payable 21,595

Deferred grant income 21,595

Grant Income 21,595

Date Amortization Discount on note payable Present Value

68,100 431,900
Year 1 21,595 46,505 453,495
Year 2 22,675 23,830 476,170
Year 3 23,830 - 500,000
ILLUSTRATION 3 ( G R A N T R E L AT E D T O I N C O M E )

At the beginning of the current year, an entity purchased an equipment for

5,000,000 and received a government grant of 500,000 with respect to this
asset.
The equipment is to be depreciated on a straight-line basis over 5 years.
The estimated residual value is 200,000.

1. To record the acquisition of the equipment:

Equipment 5,000,000
Cash 5,000,000
ILLUSTRATION 3 ( G R A N T R E L AT E D T O I N C O M E )

2. To record the government grant as deferred income:

Cash 500,000
Deferred Grant Income 500,000
3. To record annual depreciation:
Depreciation 960,000
Acc. Depreciation 960,000
(5,000,000 – 200,000 / 5 years)
4. To recognize the income from the government grant for the current year:
Deferred Grant Income 100,000
Grant Income 100,000
(500,000 / 5 years)
ILLUSTRATION 3 ( G R A N T R E L AT E D T O A S S E T )

1. To record the acquisition of the equipment:

Equipment 5,000,000
Cash 5,000,000
2. To record the government grant as a deduction from the cost of the asset:
Cash 500,000
Equipment 500,000
3. To recognize the annual depreciation:
Depreciation 860,000
Acc. Depreciation 860,000
ILLUSTRATION 3 ( G R A N T R E L AT E D T O A S S E T )

Acquisition Cost 5,000,000

Government Grant (500,000)
Net Cost 4,500,000
Residual Value (200,000)
Depreciable Amount 4,300,000

Annual Depreciation (4,300,000 / 5 years) 860,000

DISCLOSURE
FULL P F R S
An entity shall disclose the following:
a. The accounting policy adopted for
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.
PFRS for SMEs
a. The nature and amounts of
government grants recognized in
the financial statements.
b. Unfulfilled conditions and other
contingencies attaching to
government grants that have not
been recognized in income; and
c. An indication of other forms of
government assistance from which
the entity has directly benefited.
P F R S for SEs
An entity shall disclose the following
about monetary government grants:
a. The nature and amounts of
government grants recognized in
the financial statements.
b. Unfulfilled conditions and other
contingencies attaching to
government grants that have not
been recognized in income.
DISCLOSURE
FULL P F R S PFRS for SMEs P F R S for SEs
For non monetary grants:
An entity shall disclose the accounting
policy taken in accordance with
paragraph 471;

a. The nature of the government grant

and any unfulfilled conditions or
contingencies attached.

b. When fair value measurement is

elected or voluntarily disclosed,
valuation hierarchy in accordance
with paragraph 12 must be applied
and the financial statements must
describe how fair values are
derived.
 THANK
YOU
Fuentes, Gozo, Haguyahay