GOVERNMENT GRANTS 2.
The indication of the extent to which the entity has
Also called, subsidies, subventions, or premium are benefited from the assistance during the period
assistance from the government in the form of transfer of improves the comparability of its financial statements.
resources to an entity in exchange for (part or future)
compliance with certain conditions relating to operating RECOGNITION
activities of an entity. Government grants are recognized if there is reasonable
assurance that:
TAKE NOTE: EXAMPLES OF GOV GRANTS A. The attached conditions will be complied with; and
A. Receipt of cash, land, or other non-cash assets from B. The grants will be received.
the government subject to compliance with certain
conditions The mere receipt of a grant is not conclusive evidence that the
B. Receipt of financial aid in case of loss from a attached condition has been or will be satisfied.
calamity
C. Forgiveness of an existing loan from the government TYPES OF GOVERNMENT GRANTS ACCORDING TO
D. Benefit of a government loan with below-market rate ATTACHED CONDITIONS
of interest. Grants whose primary condition is
that the recipient entity should
GOVERNMENT ASSISTANCE acquire or construct long-term
It is an action by the government designed to assets.
provide an economic benefit specific to an entity or range of
Example:
entities qualifying certain criteria. Grants related to Assets a. Cash is received from the
government with the condition
Only Government assistance that meets the asset that the amount should be used to
recognition criteria are recognized as government grants. acquire equipment
Accordingly, government grants exclude government B. Land is received from the
assistance whose value cannot be reasonably measured or government with the condition
cannot be distinguished from the entity’s normal trading that a building should be
transactions. constructed on it.
TAKE NOTE: GOV ASSISTANCE NOT GOV GRANT Grants related to income Grants other than those related to
A. Tax Benefit assets.
B. Free technical or marketing advice
C. Provision of guarantees MEASUREMENT
D. Government procurement policy that is responsible
for a portion of the entity’s sales. Cash - measured at face value
Receivables - measured at fair value of
If significant, these are disclosed but not recognized as amount receivables
government grants.
MONETARY Forgivable Loan - measured at carrying
NOT GOV GRANT/ASSISTANCE (INDIRECT BENEFIT) GRANTS amount of the loan forgiven.
A. Public improvements that benefit the entire
community Loan below-market rate of interest or
zero interest - measured as the difference
B. Imposition of trading constraints on competitors. between the initial carrying amount of
C. Infrastructure in development areas such as the loan determined in accordance with
improvement to the general transport and PRFS 9 and the proceeds received
communication network
D. Improved facilities such as irrigation for the benefit of NON-MONETARY e.g Land and other Resources:
an entire community. GRANTS
★ Fair value of the non-monetary
GRANT VS. ASSISTANCE asset received;
★ or Alternatively, at Nominal
GOVERNMENT GRANTS GOVERNMENT ASSISTANCE Amount plus Direct Cost.
The transfer of resources can There is no transfer of resources NOTE: Forgivable loan is a loan that the lender (government)
be reasonably measured. and it cannot be reasonably waives repayment subject to certain conditions.
measured.
Accounted and disclosed Disclosed only APPROACHES TO ACCOUNTING FOR GOV GRANTS
CAPITAL APPROACH INCOME APPROACH
NOTE: All government grants are government assistance, but not
all government assistance are government grants
Grant is recognized outside Grant is recognized in profit or
profit or loss or in equity. loss over one or more periods.
PAS 20 provides the following reasons why the receipt of
government assistance may be significant in the preparation of NOTE: PAS 20 uses the INCOME APPROACH. The capital
the financial statements: approach is used only when donations are received from
shareholders.
1. If resources are received, an appropriate accounting
method is necessary to account for the receipts; and
ACCOUNTING FOR GOVERNMENT GRANTS REPAYMENT OF GRANTS
Government grants are “recognized in profit or loss on a A government grant that becomes repayable, for example due to
systematic basis over the periods in which the entity recognizes failure to satisfy the attached condition, is treated as a change
as expenses the related costs for which the grants are intended in accounting estimate and accounted for prospectively.
to compensate.”
Repayment of Grant Deducted from the related deferred
Accounting for government grants uses a “MATCHING related to income income balances, if any. Any excess is
CONCEPT” - if the related expenses is not yet recognized, recognized as in profit or loss.
income from government grants is also not yet recognized.
Treated as a reduction in the deferred
GRANTS RELATED TO.. ACCOUNTING TREATMENT income balance or an increase in carrying
amount of the assets
Repayment of Grant
Specific Expenses Recognized as income over the related to asset The cumulative additional depreciation
period of the related expense that would have been recognized in the
absence of the grant is recognized
Depreciable Assets Recognized in P/L over the periods immediately in P/L
and in the proportions in which
depreciation expense on those NOTE: following the repayment, entity may need to consider the
assets is recognized. possibility of impairment of the new carrying amount of the asset
Non-Depreciable Asset Recognized in P/L when the cost of
fulfilling the attached condition is TAKE NOTE: DISCLOSURE
incurred. A. The accounting policy and method of presentation
B. The nature and extent of government grant recognized
Ex: A grant of land conditioned on
the construction of a building on it in the financials and an indication of other forms of
is recognized over the periods that government assistance from which the entity has
the constructed building is directly benefited.
depreciated. C. Unfulfilled conditions and other contingencies
attaching to government grants.
Financial Aid for expenses Recognized immediately in P/L
or losses already incurred when the grant becomes receivable
(because the related cost have
NOTE: It is not required to disclose the name of the
already been exposed)
government agency that gave the grant along with the date of
sanction of the grant by such government agency and the date
Recognizing government grants in P/L on a receipt basis (e.g when cash was received in case of monetary grant.
cash basis) is prohibited as it violated the accrual basis of
accounting. A receipts basis would only be acceptable if there
is no allocation basis other than one in which the grant was
received.
PRESENTATION OF GOVERNMENT GRANTS
Grants related to Assets
Statement of Financial Position
Gross Presentation Net presentation
The grant is presented as a The grant is deducted from the
deferred income (liability) carrying amount of the related
asset.
Statement of Comprehensive Income (P/L loss section)
The income from the grant is The income from the grant is
reported separately or deducted from the depreciation
included in “other income” . charge.
However, in the Statement of cash flow, the cash flow from the
receipt of the grant and the purchase of the related asset are
presented separately, even if the entity uses the net presentation
above.
Grants related to Income
Statement of Financial Position
Gross Presentation Net presentation
The income from the grant is The income from the grant is
reported separately or deducted from the related
included in “other income” expense.