Module 4 Part 2
PAS 20 Accounting for Government Grants and Disclosure of Government Assistance
Introduction
PAS 20 prescribes the accounting and disclosure of government grants and the disclosure of other
forms of government assistance. This standard does not apply to accounting for government grants
under hyperinflationary economies, tax benefits such as income tax holidays, investment tax
credits, accelerated depreciation allowances and reduced income tax rates, government
participation in the ownership of entity and government grants covered by PAS 41 Agriculture.
Learning outcomes:
1. Explain the recognition and measurement of government grants
2. Explain the presentation of government grants in the financial statements
Objective of PAS 20
Government grants are assistance received from the government in the form of transfers of
resources in exchange for compliance with certain conditions.
Government grants exclude government assistance whose value cannot be reasonably measured
or cannot be distinguished from the entity’s normal trading transactions.
Examples of Government Grants
1. Receipt of cash, land, or other non-cash assets from the government subject to compliance
with certain conditions
2. Receipt of financial aid in case of loss from a calamity
3. Forgiveness of an existing loan from the government
4. Benefit of a government loan with below-market rate of interest
The following are not government grants:
• Tax benefits,
• Free technical or marketing advice,
• Provision of guarantees,
• Government procurement policy that is responsible for a portion of the entity’s sales,
and
• Public improvements that benefit the entire community.
THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF
REPRODUCTION, DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE
WRITTEN PERMISSION OF THE UNIVERSITY IS STRICTLY PROHIBITED.
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Recognition
Government grants are recognized if there is reasonable assurance that:
a. the attached conditions will be complied with; and
b. the grants will be received
Classifications of government grants according to attached condition
a. Grants related to assets – grants whose primary condition is that an entity qualifying for
them should purchase, construct or otherwise acquire long-term assets.
b. Grants related to income – grants other than those related to asset.
Initial measurement
• Monetary grants are measured at the
a. amount of cash received; or
b. the fair value of amount receivable; or
c. carrying amount of loan payable to government for which repayment is forgiven*; or
d. discount on loan payable to government at a below-market rate of interest.*
• Non-monetary grants (e.g., land and other resources) are measured at the
a. fair value of non-monetary asset received.
b. alternatively, at nominal amount or zero, plus direct costs incurred in preparing the asset
for its intended use.
*Grants may also be in the form of loan, such as:
a. Forgivable loan – a loan that the lender (government) waives repayment subject to certain
conditions.
b. Loan at below-market rate of interest or zero-interest
Approaches to the accounting for government grants
a. Capital approach – grant is recognized outside profit or loss or in equity.
b. Income approach – grant is recognized in profit or loss over one or more periods.
PAS 20 uses income approach. The capital approach is used only when donations are received
from shareholders.
Accounting for Government Grants
The main concept in accounting for gov’t. grants is the MATCHING CONCEPT.
Government grants are recognized in profit or loss on a systematic basis over the periods in which
the entity recognizes as expense the related costs for which the grants are intended to compensate.
THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF
REPRODUCTION, DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE
WRITTEN PERMISSION OF THE UNIVERSITY IS STRICTLY PROHIBITED.
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Presentation of Government grants related to assets
Government grants related to assets are presented in the statement of financial position either by:
a. Gross presentation –the grant is presented as deferred income (liability); or
b. Net presentation – the grant is deducted when computing for the carrying amount of the
asset
Grants related to income are sometimes presented in the income statement either by:
a. Gross presentation – the grant is presented separately or under a general heading such as
“Other income”, or
b. Net presentation – the grant is deducted in reporting the related expense
However, in the statement of cash flows, the cash flows from the receipt of the grant and the
purchase of the related asset are presented separately, even if the entity uses the net presentation.
Repayment of Government Grants
A government grant that becomes repayable is accounted for as a change in accounting estimate
that is treated prospectively under PAS 8.
Disclosures
a. Accounting policy and method of presentation
b. Nature and extent of government grants and other forms of government assistance from
which the entity has directly benefited
c. Unfulfilled conditions and contingencies attached to the government grants
References:
Millan, Z. V. (2018). PAS 20 Accounting for Government Grants and Disclosure of Government
Assistance. In Conceptual Framework and Accounting Standards (2018 Edition, pp. 226-234).
Bandolin Enterprise.
IAS 20- Accounting for Government Grants and Disclosure of Government Assistance
(2020).http://www.iasplus.com/.https://www.iasplus.com.en/standards/oas/ais20
THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF
REPRODUCTION, DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE
WRITTEN PERMISSION OF THE UNIVERSITY IS STRICTLY PROHIBITED.
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