IAS-20

Accounting for Government Grants and Disclosure for Government

Assistance
Effective 1 January 1984
scope
IAS-20 almost deals with all kind of government grants except the
following such as.
Tax reliefs such as tax holidays
Agricultural Grants
Government as part owner
Objective:
To prescribe the accounting and disclosure for Government Grants.
To prescribe disclosure for Government assistance.
What is Grant?
All Kinds of resources transferred to an entity.
Examples:
Cash
Non-Monetary assets such as buildings,equipments etc
How to receive?
Usually an entity must fulfill certain conditions in order to receive the
grant from government.
What is Assistance?
Its not transfer of resources but some other action by government to provide some benefit.
Examples:
Free marketing advices
Technical advice that how you can improve your business How you can generate better
income
How to generate funds for financing

So Assistance only helps the business but no monetary benefit or transfer of economic
resources.

Keep in mind that Government assistance is only disclosed not accounted for.
Focus Govt Grant-Capital VS Revenue Grant:

Capital Grant: If the grant is used to buy depreciating assets(Capital grant),

Two Method:
1-Deduction from income method
Initial Recording:
JE: Debit: Bank A/CCredit: Deferred Income A/C
Subsequent Recording:
JE: Debit: Deferred Income A/C Credit: Profit or Loss A/C
Rule for subsequent Recording: If grant is for purchase of a depreciating asset it will be recorded in income
statement in the same ratio by which asset will be depreciated.

2-Deduction from asset method

JE: Debit: Bank A/CCredit: Asset A/C
Revenue grants:
For example an entity have received a grant from government to increase the
number of employees then this is called as revenue grant.

For Past Cost JE: Debit: Bank A/CCredit: Profit or Loss A/C
Initial Recording:
For future Cost JE: Debit: Bank A/CCredit: Deferred Income A/C
Subsequent Recording:
JE: Debit: Deferred Income A/C Credit: Profit or Loss Income A/C
Rule for subsequent recording: If grant is Revenue grant it recorded in income
statement in the same ratio by which related expense is incurred.
Example:
Grants and depreciable assets
ABC company bought an item of property, plant and equipment for
Rs.10 million and received a government grant of Rs.2 million.
The PPE has a useful life of 10 years and has no residual value. ABC uses
straight line method to depreciate PPE. Explain how the purchase of
the property, plant and equipment and government grant would be
dealt with in the financial statements of ABC.
a)Deferred Income Method
b)Deduction from asset method