PAS 20 provides guidance on accounting for government grants and disclosure requirements. It states that government grants should not be recognized until there is reasonable assurance of compliance with conditions and receipt of the grant. Grants should be recognized as income over the periods to match them with related costs. Unconditional grants related to income are recognized immediately, while conditional grants may be recognized over periods or as income proportionate to depreciation of assets. Repayment of grants is accounted for as a revision to estimates.
PAS 20 provides guidance on accounting for government grants and disclosure requirements. It states that government grants should not be recognized until there is reasonable assurance of compliance with conditions and receipt of the grant. Grants should be recognized as income over the periods to match them with related costs. Unconditional grants related to income are recognized immediately, while conditional grants may be recognized over periods or as income proportionate to depreciation of assets. Repayment of grants is accounted for as a revision to estimates.
PAS 20 provides guidance on accounting for government grants and disclosure requirements. It states that government grants should not be recognized until there is reasonable assurance of compliance with conditions and receipt of the grant. Grants should be recognized as income over the periods to match them with related costs. Unconditional grants related to income are recognized immediately, while conditional grants may be recognized over periods or as income proportionate to depreciation of assets. Repayment of grants is accounted for as a revision to estimates.
PAS 20 Requirements & Scope PAS 20 should be applied in accounting for government grants.
PAS 20 also prescribes disclosure requirements for government grants and other forms of government assistance. Government Grants Government grants are assistance by government in the form of transfers of resources in return for past or future compliance with conditions relating to an enterprise’s operating activities. Government Assistance Government assistance is action by government designed to provide economic benefits when qualifying criteria are met by an enterprise. Examples: Free technical or marketing advice Provision of guarantees Accounting for Government Grants
Recognition and Matching
A government grant should not be recognized until there is reasonable assurance that: • enterprise will comply with the relevant conditions attaching to the grant; and • the grant will be received. Recognition and Matching Government grants should be recognized as income over the periods necessary to match them with the related cost that they are intended to compensate. They should not be credited directly to equity. Grants related to income - unconditional Government grants that compensate for past expenses or losses or government grants that are provided for the purpose of giving immediate financial support are to be taken to income immediately. Grants related to income – conditional
• Grants in recognition of specific
expenses should be recognized as income over the period of the related expense.
International Accounting Standards-Training of Trainers 8
Grants related to depreciable assets - conditional
• Grants related to depreciable assets
should be recognized as income over the periods and in proportion to the depreciation of the related assets.
International Accounting Standards-Training of Trainers 9
Grants related to nondepreciable assets - conditional
• Grants related to non-depreciable assets
may also require the fulfilment of certain obligations and would then be recognized as income over the periods which bear the cost of meeting the obligations. As an example, a grant of land may be conditional upon the erection of a building on the site and it may be appropriate to recognize it as income over the life of the building. International Accounting Standards-Training of Trainers 10 Monetary and Non-Monetary Grants In the case of a non-monetary grant, it is usual to assess the fair value of the asset and to account for both grant and asset at the assessed fair value. Presentation-Government Grants Related to Assets
Government grants related to assets, including
non-monetary grants, should be presented in the balance sheet as either: • a deduction from the carrying amount of the asset; or • deferred income. Presentation of the grant as an offset against the asset
Example: Cost of acquisition: P1,000,000;
Useful life: 4 years; Government grant: P200,000
Capitalize P800,000; annual depreciation P200,000 Presentation of the grant as deferred income Example: Cost of acquisition: P1,000,000; Useful life: 4 years; Government grant: P200,000
Capitalize deferred income P200,000; Capitalize P1,000,000, annual depreciation P250,000; annual recording of Other Income P50,000 Repayment of Grants
A government grant that becomes repayable
should be accounted for as a revision of an accounting estimate.
The repayment of an income related grant should be applied against any deferred income balance, with any excess being recognized immediately as an expense. Disclosure The following information must be disclosed: • the accounting policy adopted for government grants; methods of presentation • the nature and extent of government grants recognized; other forms of government assistance from which the enterprise has directly benefited; and • unfulfilled conditions and other contingencies relating to government assistance that has been recognized.