IAS 20
Accounting for Government Grants and Disclosure of Government Assistance
1Objective and scope
IAS 20 prescribes the accounting for, and disclosure of, government grants and other forms of government assistance. It does not cover government participation in the ownership of the entity, or grants covered by other standards such as IAS 41's treatment of grants related to biological assets.
2Key definitions
3Recognition and presentation
A government grant is recognised only when there is reasonable assurance that the entity will comply with the conditions attached to it, and that the grant will actually be received. Grants are recognised in profit or loss on a systematic basis over the periods in which the entity recognises the related costs as expenses, matching the grant against the cost it is compensating for.
| Type of grant | Permitted presentation options |
|---|---|
| Related to an asset | (a) Deduct the grant from the carrying amount of the asset, reducing the depreciation charge over its life; or (b) present the grant as deferred income, released to profit or loss over the asset's useful life |
| Related to income | (a) Present as a separate credit, or under a general heading such as 'other income'; or (b) deduct the grant from the related expense |
A non-monetary grant (e.g. land or another resource) is usually recognised at its fair value. If a grant becomes repayable, the repayment is treated as a change in accounting estimate: for an income-related grant, it is applied first against any related unamortised deferred credit, and any excess is expensed immediately; for an asset-related grant, it increases the carrying amount of the asset (or reduces the deferred income balance), with any cumulative additional depreciation expensed immediately.
4Presentation and disclosure
- The accounting policy adopted, including the method of presentation used
- The nature and extent of government grants recognised, and an indication of other forms of government assistance from which the entity has directly benefited
- Unfulfilled conditions and other contingencies attaching to recognised government assistance
5Examinable focus
What KASNEB tests
Preparing the depreciation schedule under both permitted presentations for an asset-related grant (netting off against cost, versus deferred income released over the asset's life) and showing they arrive at the same profit impact is a common numerical question. Also expect the repayment-as-a-change-in-estimate treatment when a grant condition is later breached.