3 10 Accounting for government assistance

An entity shall apply those amendments when it applies IAS 1 as amended in June 2011. Grants related to income are presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expense. The IFRS Foundation is a not-for-profit, public interest organisation established to develop high-quality, understandable, enforceable and globally accepted accounting and sustainability disclosure standards. It is important for grant recipients to examine the terms and all conditions of a grant to determine whether the reasonable assurance recognition threshold is met.

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• However, if the conditions of the grant are not met, the enterprise may have to return the grant.
• Different methods are prescribed for grants related to specific assets.
• Accounting for government grants under IFRS generally depends on the nature and conditions of the grant.
• Before we dig a bit more in details, let me stress that you should never ever credit the receipt of any grant directly in equity.
• Alternatively, Company can recognize the land and the grant at their nominal value (zero).

The effect of the change in estimate is recognized in the period in which management concludes that it is no longer reasonably assured that all of the grant conditions will be met. A corresponding financial liability is recognized for the amount of the repayment. Unlike IFRS, US GAAP has specialized industry accounting requirements for not-for-profit entities (NFPs) that receive government grants. For other (business) entities, US GAAP does not contain specific guidance on the accounting for government grants.

Summary of IAS 20

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance outlines how to account for government grants and other assistance. AS 12 explains accounting for government grants, which are essential for promoting industries and economy. The AS does not cover accounting for price changes or other government assistance. what is grant accounting Grants can be accounted for using capital or income approach based on their nature. Different methods are prescribed for grants related to specific assets. An entity recognises government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received.

Repayment of government grants

The cash received from the government is repayable in cash only if the entity decides to exploit and commercialise the results of the research phase of the project. The terms of that repayment can result in the government receiving as much as twice the amount of the original cash proceeds if the project is successful. If the entity decides not to exploit and commercialise the results of the research phase, the cash received is not repayable in cash, but instead the entity must transfer to the government the rights to the research.

• For more effective grant reporting, make sure your grant management for nonprofits accounting software for grant management has the ability to segregate the grant activity and the purpose of the grant.
• This is important to make sure that the money is going where it’s supposed to go.
• Government assistance that meets the definition of a government grant is accounted for under the specific requirements of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.
• These measures include programmes financing the move to new, greener technologies.
• When receiving a conditional grant, do not recognize the funds until you have met all of the conditions.
• Your accounting system must be able to track a grant’s budget and actual activity to ensure compliance and proper grant management.

What is the difference between a grant and a loan?

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• Grant recipients must meet certain conditions before they can receive the money.
• 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.
• One method recognises the grant as deferred income that is recognised in profit or loss on a systematic basis over the useful life of the asset.
• Reimbursable grants are given for a specific purpose or project and are repaid once the expenses are incurred, or the project is completed.

A government grant is not recognised until there is reasonable assurance that the entity will comply with the conditions attaching to it, and that the grant will be received. Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to the grant have been or will be fulfilled. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. At first glance, accounting for government grants may appear to be relatively straightforward.