Government grants is a type of assistance by government in the form of transfers of resources to an entity in return for past/future compliance with certain terms & conditions, which are related to the operating activities of an entity.
IAS 20 guides on how to account for government grants and other assistance.
Recognition Criteria
All Government grants including non-monetary grants at fair value shall not be recorded until there’s reasonable assurance that:
The forgivable loan from government shall be treated as government grant only if there is reasonable assurance that the entity will meet all the conditions for the loan.
The benefit of loan by government at a below-market rate of interest is treated as a government grant. This loan shall be recognized and measured as per the Ind AS 39 Financial Instruments:
Government grants needs to be recognized in profit or loss on a systematic basis over the period during which the entity recognizes as expenses the related costs for which the grants are intended to be provided is fulfilled.
It is fundamental to the income approach to recognize the government grants in profit or loss on a systematic basis over the period/year in which the entity recognizes as expenses the related costs for which the grant is meant to compensate. Recognition of any government grants in profit or loss on a receipts basis will not be in accordance with the accrual accounting assumption.
A government grant which becomes receivable from government as compensation for expenses or losses already incurred or with the aim of giving immediate support to the entity with no future related costs will be recognized in profit or loss of the period in which it is being received.
If an action designed by government to provide an economic benefit specific to entity or range of entities qualifying under certain conditions are Government Assistance.
Accounting Treatment of Government grants
Capital Approach | Income Approach |
under which a grant is recognized outside profit or loss | Under which a grant is recognized in profit or loss in appropriate periods. |
Not Prescribed by Ind AS 20 | Prescribed by Ind AS 20 |
Grants are not earned by entity but represent an incentive that is being provided by government without related costs. | The entity earns them through compliance with their conditions and obligations. |
Presentation of Grants
Repayment of government grants
The grant which becomes repayable shall be accounted for as change in accounting estimates as per Ind AS 8.
Disclosure Requirements
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