GOVERNMENT GRANTS

Government grants are 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.
(PAS 20)

CLASSIFICATIONS OF GOVERNMENT GRANTS

Grants related to assets – these are government grants whose primary condition is that an entity
qualifying for them shall purchase, construct or otherwise acquire long-term assets.

Grants related to income – these are government grants other than those related to assets

Recognition Government grants, including nonmonetary grants at fair value, shall be recognized when
there is reasonable assurance that:
 The entity will comply with the conditions attaching to them
 The grants will be received

Accounting for Government Grants

Accounting for Government Grants
Grants related to depreciable assets
Grants related to nondepreciable assets requiring Recognized as income over the periods which
fulfillment of certain conditions
Grants that become receivable as compensation
for expenses or losses already incurred or for
giving immediate financial support
Recognized as income over the period of related
expense
Recognized as income over the periods and in
proportion to the depreciation of the related
assets
bear the cost of meeting the conditions
Recognized as income in the period in which it
becomes receivable

REPAYMENT OF GOVERNMENT GRANT

 A government grant that becomes repayable, for example because conditions of receipt have
not been met shall be accounted for as a change in accounting estimate.
 Repayment of a grant related to income shall be applied first against any unamortized deferred
income and any excess shall be recognized immediately as an expense.
 Repayment of a grant related to an asset shall be recorded by increasing the carrying amount
of the asset. The cumulative additional depreciation that would have been recognized to date in
the absence of the grant shall be recognized immediately as an expense.

Government Assistance

Government assistance is an action by government designed to provide an economic benefit specific to

an entity or range of entities qualifying under certain criteria.

Illustrative Problems

1. An entity receives a grant of 15, 000, 000 from the national government for the purpose of defraying
safety and environmental expenses over the period of three years. The safety and environmental
expenses will be incurred by the entity as follows:
 First year 2, 000, 000
Second year 3, 000, 000
Third year 5, 000, 000

2. An entity receives a grant of 50, 000, 000 from the Australian government for the acquisition of a
chemical facility with an estimated cost of 80, 000, 000 and useful life of 5 years.

3. An entity is granted a large tract of land in Mindanao by the national government. The fair value of the
land is 60, 000, 000. The grant requires that the entity shall construct a refinery on the site. The cost of
the refinery is estimated to be 100, 000, 000 and useful life is 20 years.

4. An entity receives a grant of 50, 000, 000 from the USA government to compensate for massive losses
because of a recent earthquake.
Source: Valix, C. (2019); Intermediate Accounting 1, Philippines, GIC Enterprises and Co., Inc.
USL Blue Notes (2019). Government Grants