MFRS 120

ACCOUNTING FOR GOVERNMENT

GRANTS &
DISCLOSURE OF GOVERNMENT
ASSISTANCE
 Definition
Government grants
The assistance 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. They exclude those forms of
government assistance which cannot reasonably have a value placed
upon them and transactions with government which cannot be
distinguished from the normal trading transactions of the entity.
 Accounting for government grants
1. Capital approach
 Grant is directly credited to shareholders’ interest.
2. Income approach
 Grant is credited to the income statement over one or more
periods.

MFRS 120 permits income approach

 Categories of Grants

Grants related to Grants related to

assets income
● Deferred income ● Credit in income statement
or or
● Write off against ● Deduction against related
asset expense
 Revocable/Repayable Grants
• A government grant that has been revoked or becomes repayable
should be treated as a revision of an accounting estimate.
• Treatment depends on how the repayment is made:
– If repayment of grant is related to income
• It should be applied first against any unamortised deferred
income.
• Any excess should be recognised immediately as an expense.
– If repayment of grant is related to asset
• It should be recorded by increasing the carrying amount of
the asset or reducing the deferred income balance by the
amount repayable.
• The cumulative additional depreciation that would have
been recognised to date as an expense in the absence of the
grant should be recognised immediately as an expense.
 Government Assistance
• Definition of government assistance:
‘Action by government designed to provide an economic benefit
specific to an entity or range of entities qualifying under certain
criteria’
• Does not include benefits provided only indirectly through action
affecting general trading conditions, such as the provision of
infrastructure in development areas or the imposition of trading
constraints on competitors.’
• Not quantified and introduced into the financial statements.
• Examples of such assistance whose value cannot be reasonably
measured are technical or marketing advice and provision of
guarantees.
 Disclosures
1. Accounting policy adopted for government grants, including the
methods of presentation adopted in the financial statements
2. Nature and extent of government grants recognised in the
financial statements and other forms of government assistance
received
3. Unfulfilled conditions and other contingencies attached to
government assistance that has been recognised.