Accounting for Government

Grants and Disclosure of

Government Assistance-
IAS 20

Lecture by:Rafaqat Hasnat,ACA

 Government Grants-General principles
Governments often provide money or incentives to companies to export their goods or to promote local
employment.
Government grants could be:
 revenue grants, e.g. contribution towards payroll costs
 capital grants, e.g. contribution towards purchase of non-current assets.
IAS 20 follows two general principles when determining the treatment of grants:
 Prudence: grants should not be recognised until the conditions for receipt have been complied with
and there is reasonable assurance the grant will be received.
 Accruals: grants should be matched with the expenditure towards which they were intended to
contribute.
 Revenue Grants
The recognition of the grant will depend upon the circumstances.
 If the grant is paid when evidence is produced that certain expenditure has been incurred, the
grant should be matched with that expenditure.
 If the grant is paid on a different basis, e.g. achievement of a nonfinancial objective, such as the
creation of a specified number of new jobs, the grant should be matched with the identifiable
costs of achieving that objective.
Presentation of revenue grants
IAS 20 allows such grants to either be:
 presented as a credit in the statement of profit or loss, or
 deducted from the related expense.
 Capital Grants
IAS 20 permits two treatments:
 Write off the grant against the cost of the non-current asset and depreciate the reduced cost.
 Treat the grant as a deferred credit and transfer a portion to revenue each year, so offsetting
the higher depreciation charge on the original cost.
 Other types of government assistance may include the provision of interest- free loans or
guarantees. These should be disclosed in the notes to the accounts.
Repayment of grants

 In some cases grants may need to be repaid if the conditions of the grant are breached.
 If there is an obligation to repay the grant and the repayment is probable, then it should be
provided for in accordance with the requirements of IAS 37.