Government

grant
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Chapter 24
Intermediate Accounting
by: Valix, Peralta, Valix

Rosario M. Perez
 DEFINITION

• Assistance by government in the form of

transfer of resources to an entity in return for
part or future compliance with the certain
conditions relating to the operating activities
of the entity. PAS 20, paragraph 3
• Subsidy, subvention, premium.
 EXAMPLES

• Receipt of cash, land, or other non-cash

assets from the government subject to
compliance with certain conditions
• Receipt of financial aid in case of loss from a
calamity
• Forgiveness of an existing loan from the
government (Forgivable Loan)
• Benefit of a government loan with zero or
below-market rate of interest
 Recognition

• Government grant is recognized if there is

a reasonable assurance that:
a. the attached conditions will be complied
with; and
b. the grants will be received.
The mere receipt of a grant is not a conclusive evidence
that the attached condition has been or will be satisfied.
 Measurement

• Monetary grants
a. Amount of cash received
b. Fair value of amount of receivable
c. Carrying amount of forgivable loan
• Non monetary grants
a. Fair value
 Classifications

• Grant related to ASSET

grants whose primary condition is that the recipient
entity should purchase, construct or otherwise
acquire long-term assets.
Examples:
*Cash is received from the government with the
condition that the amount should be used to acquire
equipment.
*Land is received from the government with the
condition that a building should be constructed on it
 Classifications

• Grant related to INCOME

grants other than those related to assets.
 Accounting for
Government Grant
• Government grants are "recognized in
profit or loss on a systematic basis over
the periods in which the entity recognizes
as expense the related costs for which the
grants are intended to compensate“.
• Government grants are recognized as
income over one or more periods in which
the related cost is incurred
 Accounting for
Government Grant
• The main concept in accounting for gov’t.
grants is the MATCHING CONCEPT. It
means to recognize grants as income over
the relevant periods to match them with
the related expenditures or costs they
should compensate.
 Accounting for
Government Grant
• Illustration 1
Grant in recognition of specific expenses
shall be recognized as income over the
period of related expense.
Problem 24-1 #1
 Accounting for
Government Grant
• Illustration 2
Grant related to depreciable asset shall be
recognized as income over the periods and
in proportion to the depreciation of the
related assets. Problem 24-1 #2
 Accounting for
Government Grant
• Illustration 3
Grant related to non depreciable asset
requiring fulfilment of certain conditions shall
be recognized as income over the periods
which bear the cost of meeting the condition.
Problem 24-1 #3
 Accounting for
Government Grant
• Illustration 4
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 further related costs shall be recognized
as income of the period in which it becomes
receivable. Problem 24-1 # 4
 Presentation of
Government Grant
Grants related to ASSETS
Gross presentation – the grant is
presented as deferred income
(liability);
Grants related to INCOME
Gross presentation – the grant is
presented separately or under a
general heading such as “Other
income”, or

Net presentation – the grant is Net presentation – the grant is

deducted deducted in reporting the related
when computing for the carrying expense
amount of
the asset

Problem 24-4
 Repayment of
Government Grant
• A government grant that becomes repayable is
accounted for as a change in accounting
estimate that is treated prospectively under PAS
8
• The repayment of a grant related to income is
deducted from the related deferred income
balance, if any. Any excess is recognized
immediately as an expense.
 Repayment of
Government Grant
• The repayment of a grant related to asset is
treated as an increase in the carrying amount
of the asset. The cumulative additional
depreciation that would have been
recognized in the absence of the grant is
recognized immediately as an expense.
• Problem 24-8 page 674 - 676
Problem 24-8
Problem 24-8
Problem 24-8
Grant of Interest Free
Loan
• Forgivable loan
• Zero or below-market rate of interest
• Grant is measured as the difference
between the face amount and the present
value of the loan.
Government Assistance
• Government grants exclude government assistance
whose value cannot be reasonably measured or
cannot be distinguished from the entity’s normal
trading transactions.
• Government assistance are other actions of the
government designed to provide some economic
benefit to an entity.
1. Tax benefits
2. Free technical or marketing advice,
3. Provision of guarantees,
4. Government procurement policy that is
responsible for a portion of the entity’s sales
Government Assistance

• The following are NOT government assistance and

therefore are neither disclosed nor recognized.
1. Public improvements that benefit the entire
community.
2. Imposition of trading constraints on competitors
3. Infrastructure in development areas such as
improvement to the general transport and
communication network
 Disclosures about
Government Grant
• Accounting policy and method of presentation
• Nature and extent of government grants and other
forms of government assistance from which the
entity has directly benefited.
• Unfulfilled conditions and contingencies attached to
the government grants.
It is not required to disclose the name of the
government agency that gave the grant along with the
date of sanction of the grant by such government
agency and the date when cash was received in of
monetary grant.