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IFRS IAS 20 Accounting for government grants and disclosure

IFRS IAS 20 Accounting for government grants and disclosure

IFRS IAS 20 Accounting for government grants and disclosure: Scope

IFRS IAS 20 Accounting for government grants and disclosure:  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.

IFRS IAS 20 Accounting for government grants and disclosure: This Standard does not deal with:

  1. The special problems arising in accounting for government grants in financial statements reflecting the effects of changing prices or in supplementary information of a similar nature;
  2. Government assistance that is provided for an entity in the form of benefits that are available in determining taxable profit or tax loss, or are determined or limited on the basis of income tax liability. Examples of such benefits are income tax holidays, investment tax credits, accelerated depreciation allowances and reduced income tax rates;
  3. Government participation in the ownership of the entity;
  4. Government grants covered by IAS 41 Agriculture.
IFRS IAS 20 Accounting for government grants and disclosure

IFRS IAS 20 Accounting for government grants and disclosure

IFRS IAS 20 Accounting for government grants and disclosure: Government refers to government, government agencies and similar bodies whether local, national or international. Government assistance is 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. 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. 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.

IFRS IAS 20 Accounting for government grants and disclosure:  Grants related to assets are government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.

Grants related to income are government grants other than those related to assets. Forgivable loans are loans which the lender undertakes to waive repayment of under certain prescribed conditions. Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction.

IFRS IAS 20 Accounting for government grants and disclosure: Government assistance takes many forms varying both in the nature of the assistance given and in the conditions which are usually attached to it. The purpose of the assistance may be to encourage an entity to embark on a course of action which it would not normally have taken if the assistance was not provided.

IFRS IAS 20 Accounting for government grants and disclosure: The receipt of government assistance by an entity may be significant for the preparation of the financial statements for two reasons. Firstly, if resources have been transferred, an appropriate method of accountingfor the transfer must be found. Secondly, it is desirable to give an indication of the extent to which the entity has benefited from such assistance during the reporting period. This facilitates comparison of an entity’s financial statements with those of prior periods and with those of other entities.

IFRS IAS 20 Accounting for government grants and disclosure: Government grants are sometimes called by other names such as subsidies, subventions, or premiums.

IFRS IAS 20 Accounting for government grants and disclosure:

This extract has been prepared by IFRS Foundation staff and has not been approved by the IASB. For the requirements reference must be made to International Financial Reporting Standards. 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. 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.

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. Government assistance is 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.

In this Standard, government assistance does not include the provision of infrastructure by improvement to the general transport and communication network and the supply of improved facilities such as irrigation or water reticulation which is available on an ongoing indeterminate basis for the benefit of an entire local community. A government grant may take the form of a transfer of a non-monetary asset, such as land or other resources, for the use of the entity.

IFRS IAS 20 Accounting for government grants and disclosure

In these circumstances it is usual to assess the fair value of the non-monetary asset and to account for both grant and asset at that fair value. 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.

(b) The grants will be received. 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.

A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised in profit or loss of the period in which it becomes receivable.

IFRS IAS 20 Accounting for government grants and disclosure

Grants related to assets are government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held. 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. Grants related to income are government grants other than those related to assets.

Grants related to income are sometimes presented as a credit in the statement of comprehensive income, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expense. A government grant that becomes repayable shall be accounted for as a change in accounting estimate. 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. The following matters shall be disclosed:

  1. The accounting policy adopted for government grants, including the methods of presentation adopted in the financial statements;
  2. 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
  3. Unfulfilled conditions and other contingencies attaching to government assistance that has been recognised.

IFRS IAS 20 Accounting for government grants and disclosure

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