Bogle and Company - Government Grants IAS 20

IAS 20Accounting for Government Grants and Disclosure of Government Assistance

Summary

This Standard shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assistance

IAS 20 became effective for financial statements covering periods beginning on or after 1 January 1984.

Key Definitions

Government: government, government agencies and similar bodies whether local, national or international.

Government Assistance : action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. Government assistance for the purpose of this Standard 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.Exchange difference: the difference resulting from translating a given number of units of one currency into another currency at different exchange rates.

Government Grants: a subsidiary, associate, joint venture, or branch whose activities are based in a country or currency other than that of the reporting entity.

Governement Assisitance: assistance by government 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

How to account for Government Grants

Government grants, including non-monetary grants at fair value, shall not be recognised until there is reasonable assurance that:

(a) the entity will comply with the conditions attaching to them; and

(b) the grants will be received. [IAS 20.7]

Government grants shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate.At each subsequent balance sheet date: [IAS 21.23] foreign currency monetary amounts should be reported using the closing rate.[IAS 20.12]

There are two (2) basis of approaches used for government grants:

the capital approach, under which a grant is recognised outside profit or loss.
income approach, under which a grant is recognised in profit or loss over one or more periods.

Prensentation of Government Grants

Government grants related to assets, including non-monetary grants at fair value, shall be presented in the statement of financial position either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset [IAS 20.24].

Grants related to income are presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expense.[IAS 20.29].

Repayment of government grants

A government grant that becomes repayable shall be accounted for as a change in accounting estimate (see IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors).

Repayment of a grant related to income shall be applied first against any unamortised deferred credit recognised in respect of the grant. To the extent that the repayment exceeds any such deferred credit, or when no deferred credit exists, the repayment shall be recognised immediately in profit or loss.

Repayment of a grant related to an asset shall be recognised 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 in profit or loss to date in the absence of the grant shall be recognised immediately in profit or loss.[IAS 20.32].

Disclosure

The following matters shall be disclosed:

(a) the accounting policy adopted for government grants, including the methods of presentation adopted in the financial statements;

(b) the nature and extent of government grants recognised in the financial statements and an indication of other forms of government assistance from which the entity has directly benefited; and

(c) unfulfilled conditions and other contingencies attaching to government assistance that has been recognised.[IAS 20.39].