PAS 20

Accounting for Government Grants and Disclosure of Government

Assistance
Objectives
After the presentation, you should be able to:
• Appreciate government grants
• Understand the presentation and disclosures of government grants
• Apply changes in accounting estimate as to government grants
• Prepare journal entries related to government grants
Definition
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.
Scope
The standard does not deal with
• Government assistance that is provided for an entity in the form of benefits
that are available in determining taxable income or are determined or limited
to the basis of income tax liability
• Government participation in the ownership of an entity
• Government grants covered by PAS 41 Agriculture
Recognition and Measurement
Grants are recognized when both
• There is reasonable assurance the entity will comply with the conditions
attached to the grant
• The grant will be received

Initial measurement
• Non-monetary grants, such as land or other resources, are usually accounted
for at fair value, although recording both the asset and the grant at a nominal
amount is permitted.
Types of Government Grants
Grant related to income Grant related to asset
• Immediate recognition • Systematic – depreciation
• Systematic – related expense
Presentation of Government Grants
Grant related to income Grant related to asset
• Immediate recognition • Systematic – related asset
• Systematic – related expense depreciation

May be presented May be presented

• Other income • Deferred Income (Liability)
• Deducted from the related • Deduction from the asset’s carrying
expense (Offset) amount (Contra Asset)
Example 1: Immediate Recognition
Kawawang Company received a grant of P15,000,000 from the Philippine
Government to compensate for massive losses incurred due to recent Covid-19
pandemic.
Example 2: Related Expense
Napa Kaconcern Company received a grant of P50,000,000 from the Philippine
Government in order to defray safety and environmental costs within the area
where the entity is located.
The safety and environmental costs are expected to be incurred over four years,
respectively, P2,000,000, P4,000,000, P6,000,000 and P8,000,000.
Example 3: Related Asset Depreciation
Chinorvak Company received a grant of P60,000,000 from the Philippine
Government for the construction of laboratory and research facility with an
estimated cost of P80,000,000 and useful life of 25 years.
Repayment of Government Grants
Grant related to income & grant related to asset (Deferred income) procedures:
1. Derecognize any remaining Deferred Income (Liability)
2. Derecognize asset received
3. Recognize the excess as loss
Example 4: Repayment – Deferred Income
Suwa Ilna Company purchased a machine for P10,000,000 on January 1, 2020. The entity received a
government grant of P1,000,000 in respect of this asset.
The policy is to depreciate the asset over 5 years on a straight line basis and treat the grant as
deferred income.
On January 1, 2022, the grant became fully repayable because of noncompliance with conditions.
Repayment of Government Grants
Grant related to asset (Deduction from related asset) procedures:
1. Increase the carrying amount
2. Derecognize asset received
3. Adjust depreciation
Example 5: Repayment – Contra Asset
Matiga Sangulo Company purchased a machine for P10,000,000 on January 1, 2020. The entity
received a government grant of P1,000,000 in respect of this asset.
The policy is to depreciate the asset over 5 years on a straight line basis and treat the grant as
deduction from asset.
On January 1, 2022, the grant became fully repayable because of noncompliance with conditions.
Disclosures
• Accounting policy adopted for government grants, including method of statement
of financial position presentation
• Nature and extent of grants recognized in the financial statements
• An indication of other forms of government assistance from which the entity has
directly benefited
• Unfulfilled conditions and contingencies attaching to recognized grants
Summary
Types of Basis for Presentation of Repayment of
Government Grants Recognition of Grant Government Grants Government Grants
Grant related to • Immediate • Other income • Derecognize any remaining
income recognition • Deduction from related deferred income (Liability)
• Systematic - related expense (Offset) • Derecognize asset received
expense • Recognize the excess as loss on
repayment of grant

Grant related to asset • Systematic - related • Deferred income • Same procedures as to grant
asset depreciation (Liability) related to income
• Deduction from related • Increase the carrying amount
asset (Contra account) • Derecognize asset received
• Adjust depreciation
Were You Able To
• Appreciate government grants
• Understand the presentation and disclosures of government grants
• Apply changes in accounting estimate as to government grants
• Prepare journal entries related to government grants