PAS 20 Government Grant

Government Grant as assistance by government in the form of transfers of resources to an entity in return for
past or future compliances with certain conditions relating to the operating activities of the entity.

Recognition and Measurement

Government Grants including non-monetary grants at fair value shall be recognized when there is reasonable
assurance that:
 The entity will comply with the conditions attaching to them
 The grants will be received

Government grant shall not be recognized on a cash basis as this is not consistent with generally accepted
accounting practice

Classifications of Government Grant

1. Grant related to assets are gov’t grants whose primary condition is that an entity qualifying for them
should purchase, construct or otherwise acquire long-term assets.
2. Grant related to income are gov’t grants other than those related to assets.

Accounting for government grant

Government grant shall be recognized as income on a systematic basis over the periods in which an entity
recognizes as expenses the related costs for which the grant is intended to compensate. In other words, the grant
is taken to income over one or more periods in which the related cost is incurred.

Grant in recognition of specific expenses shall be recognized as income over the period of the related
expense.
Government grant related to depreciable asset is usually recognized as income over the useful life of
the asset and in proportion to the depreciation of the asset. The straight-line method is used.
Government grant related to non-depreciable asset that requires fulfillment of certain conditions
should be recognized as income over the periods which bears 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 future related costs
should be recognized as income of the period in which it becomes receivable.

Presentation of government grant

1. Government grant related 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 is action by gov’t designed to provide an economic benefit 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.
 Free technical or marketing advice
 Provision of guarantee
 Government procurement policy that is responsible for a portion of the entity’s sales.
 Government assistance does not include the following indirect benefits or benefits not specific to an entity:
 Infrastructure in development areas such as improvement to the general transport and communication
network
 Imposition of trading constraints on competitors
 Improved facilities such as irrigation for the benefit of an entire local community

Disclosure about government grant

 The accountancy policy adopted for government grant including method of presentation adopted in the
financial statements.
 The nature and extent of government grant recognized in the financial statements and an indication of
other form of government assistance from which the entity has directly benefited.
 Unfulfilled conditions and other contingencies attaching to government assistance that has been
recognized.

Government- refers to gov’t, gov’t agencies and similar bodies whether local, national or international.
Forgivable loans- are loans which the lender undertakes to waive repayment of under certain prescribed
conditions.
Fair Value- is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and
knowledgeable seller in an arm’s length transactions

Two reasons why receipt of government assistance is significance in FS

 If resources have been transferred, an appropriate method of accounting for the transfer must be found.
 It is desirable to give an indication of the extent to which the entity has benefited from such assistance
during the reporting period.

Others Names: Subsidies, Subventions or Premium

Government grant in recognition of specific costs recognized as income over the same period as the relevant
expense.

Two Broad Approaches:

 Capital Approach- recognized outside profit or loss
 Income Approach- recognized in profit or loss over one or more periods.

A government grant that becomes repayable shall be accounted for as change in accounting estimate.

Repayment:
 Grant related to income- shall be applied first against the deferred income balance and any excess shall
be recognized immediately as an expense.
 Grant related to asset- shall be recorded by:
o Increasing the carrying amount of the asset if the deduction approach is used.
o Recognizing as expense the cumulative additional depreciation that would have been recorded to
date in the absence of the grant if the deduction approach is used.
o Reducing the deferred income balance to zero if the deferred income approach is used.

Government assistance include:

 Free technical advices/ marketing
 Provisions of guarantee
  Government procurement policy that is responsible for a portion of the entity’s sales

The amount of benefit in a zero-interest government loan is measured as the difference between face amount
and present value of loan.

Accounting treatment:
 Nonmonetary grant- record both the grant at a value estimated of the nonmonetary asset
 Grant related to asset- either set up the grant as deferred income or deduct if in arriving at the carrying
amount of the asset.
 Grant related to income- Present the grant in the income statement as other income or as a separate line
item, or deduct it from the related expense.