IAS 20 – GOVERNMENT GRANTS

- Bifurcate between N.C.L and C.L

- Recognize over the useful life of asset and not the condition
- Grant/loan becoming repayable is treated as change in estimate
- If measurable = Government Grant If not measurable = Government Assistance
- Non-Monetary Grants: If no consideration is paid: Recognize using Fair value
- Non-Monetary Grants: If nominal value is paid: Recognize using that nominal value. For e.g., CU 1,000 paid to obtain an Asset
granted by the government over its fair value of CU 100,000.

OTHER INCOME / EXPENSE RELATED

Bank 10,000 Bank 10,000
Def. G. G 10,000 P/L 10,000
(On Receipt) (for expense already incurred, recognize immediately)
Unamortized GG = 0
Def. G. G 10,000 Bank 10,000
Other Income(P/L) 10,000 Def. G. G 10,000
(On Recognition) (for expenses as incurred)

Unamortized GG = 0 Def. G. G 2,000

Other Income (P/L) 2,000
(On Recognition) (either as O. Income or set-off expense as
expenses are being incurred)
Unamortized GG = 8,000

REVERSAL
P/L 10,000 Def. G. G 8,000 (unamortized)
Bank 10,000 P/L 2,000 (amortized)
Bank 10,000 (amount repayable)

 BELOW MARKET RATE: Example: Loan: 100,000 for 2 years @ 5% where market IR is 12%
- Step 1: Calculate Future Value of 2 years using nominal rate of 5%
500,000 * (1.05 ^ 2) = 110,250
- Step 2: Calculate Present Value of the Future Value using market rate for discounting
110,250 * (1.12 ^ -2) = 87,890
Bank 100,000 Def. G.G 6,055 Int. Exp 10,547
Def. G. Grant 12,110 P/L 6,055 Liability 10,547
Liability 87,890 (amortization)
(on receipt) On interest or life on loan (int exp on market rate)

 FORGIVABLE LOAN ON MEETING CERTAIN CONDITIONS

- Treated as GG if reasonable assurance that the entity will meet the terms for forgiveness. Until then, treat as a liability
- Not a F.L if government will demand repayment by means of transfer og rights to assets

 INTEREST FREE LOAN: Example: Loan: 500,000 for 5 years @ 0% where market IR is 15%
Step 1: Calculate Future Value of 2 years using nominal rate of 5%
500,000 * (1.05 ^ 2) = 110,250
Step 2: Calculate Present Value of the Future Value using market rate for discounting
110,250 * (1.12 ^ -2) = 87,890
Bank 500,000 Def. G.G 50,282 Int. Exp 37,288
Def. G. Grant 251,412 P/L 50,282 Liability 37,288
(amortization)
Liability 248,588
On interest or life on loan (int exp on market rate)
 (on receipt)

ASSET RELATED
INCOME METHOD NET ASSET METHOD
PPE 500,000 PPE 500,000
Bank 500,000 Bank 500,000
(purchase of asset with 5 years U.L) (purchase of asset)

Bank 200,000 Bank 200,000

Def. G. G 200,000 PPE 200,000
(On Receipt) (On Receipt)

Dep 100,000 Dep 60,000

Acc. Dep 100,000 Acc. Dep 60,000
(Annual Depreciation) (Annual Depreciation)

Def. G. G 40,000
Other Income(P/L) 40,000
(Amortization of GG on useful life of assets SLM)

Balance/Unamortized GG = 160,000 Balance/Unamortized GG = 160,000

Dep 100,000 Dep 60,000
Acc. Dep 100,000 Acc. Dep 60,000
(Annual Depreciation) (Annual Depreciation)

Def. G. G 40,000
Other Income(P/L) 40,000
(Amortization of GG on useful life of assets SLM)

Balance/Unamortized GG = 120,000 Balance/Unamortized GG = 120,000

REVERSAL (in year 2 end)

Def. G. Grant 120,000 (unamortized) PPE 120,000 (unamortized)
Dep. Expense 80,000 (amortized) Dep (P/L) 80,000 (amortized)
Bank 200,000 (amount repayable) Bank 200,000 (amount repayable)
(amortized amount now charged as expense to P/L)
(diff to NCA)
Dep 125,000
Acc. Dep 125,000
(Annual Depreciation as normal)

 GRANT FOR NON-DEPRECIABLE ASSET (Land)

- Amortize over any condition attached to the grant, OR
- Amortize over the useful life of Building constructed over the Land where the condition is to construct a
building/factory and use I as a condition for the grant