CFAS

PAS 20 - ACCOUNTING FOR GOVERNMENT GRANT AND DISCLOSURE OF GOVERNMENT

ASSISTANCE
BANGCORO, SHERIE ANNE – BACHELOR OF SCIENCE IN ACCOUNTANCY
1st SEMESTER │A.Y. 2024 - 2025
Introduction the loan if the business meets certain goals, like
PAS 20 prescribes the accounting and disclosure of achieving environmental standards.
government. grants and the disclosure of other forms d. Benefit of a government loan with below-market
of government assistance. rate of interest
Low-interest loans – Sometimes, the government
PAS 20 does not apply to: offers loans with very low interest rates to support
a. accounting for government grants under specific types of businesses, such as small businesses
hyperinflationary economies; or green energy projects.
Grants in hyperinflationary economies – This means
if a country’s economy has extremely high inflation, Only government assistance that meet the recognition
PAS 20 doesn’t tell companies how to handle grants in criteria are recognized as government grants.
those cases. Accordingly, government grants exclude government
b. tax benefits such as income tax holidays, assistance whose value cannot be reasonably
investment. tax credits, accelerated measured or cannot be distinguished from the entity's
depreciation allowances and reduced income normal trading transactions.
tax rates;
Tax benefits – PAS 20 doesn’t cover benefits like tax For help from the government to be considered a
holidays, investment tax credits, or lower tax rates. “government grant,” it needs to meet specific rules for
c. government participation in the ownership of being recorded as such. Specifically, the value of the
the entity; and assistance has to be clear and separate from the
Government ownership – If the government owns company’s regular business activities. If the value is
part of the company, PAS 20 doesn’t deal with that. unclear or it’s hard to separate from normal business,
d. government grants covered by PAS 41 it’s not considered a grant.
Agriculture. (PAS 20.2)
Agricultural grants – PAS 20 doesn’t cover The following are forms of government assistance but
government grants related to farming; that’s handled are not government grants:
by another standard called PAS 41. a. Tax benefits - This includes things like tax holidays
(paying no taxes for a certain period) or tax credits.
While helpful, it doesn’t directly give the business
Government grants resources like cash or land, so it’s not counted as a
Government grants (sometimes called subsidies, grant.
subventions, or premiums) are assistance received b. Free technical or marketing advice - If the
from the government in the form of transfers of government provides advice or consulting services, it’s
resources in exchange for compliance with certain support, but since no direct resource (like cash or land)
conditions. is transferred, it’s not a grant.
c. Provision of guarantees - The government might
Government grants are types of support the promise to cover a company’s loan if it can’t pay. This
government provides to businesses or individuals. The is helpful, but it doesn’t directly give the company
government gives resources (like money, land, or other resources, so it’s not treated as a grant.
assets) to help them meet specific conditions, such as d. Government procurement policy that is
creating jobs, investing in certain areas, or recovering responsible for a portion of the entity's sales - If the
from disasters. government buys a portion of a company’s products
regularly, it’s good for business, but this is part of
Examples of government grants: normal sales, not a special grant.
a. Receipt of cash, land, or other non-cash assets from
the government subject to compliance with certain
conditions If significant, these are disclosed but not recognized as
Cash, land, or other non-cash assets – The government grants.
government might give a business cash or provide land
at no cost if the business agrees to create jobs or build Some things the government does can benefit
a factory in a certain area. businesses, but they aren’t considered government
b. Receipt of financial aid in case of loss from a assistance because they’re not targeted at specific
calamity companies. These actions are more general, benefiting
Financial aid after a calamity – If a business suffers the broader community or industry rather than one
losses due to a disaster (like a flood or earthquake), business in particular. Because of this, they don’t need
the government might provide funds to help them to be recorded or disclosed by individual companies as
recover. government assistance.
c. Forgiveness of an existing loan from the government
Loan forgiveness – If a business took a loan from the
government, the government might forgive (cancel)

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 CFAS
PAS 20 - ACCOUNTING FOR GOVERNMENT GRANT AND DISCLOSURE OF GOVERNMENT
ASSISTANCE
BANGCORO, SHERIE ANNE – BACHELOR OF SCIENCE IN ACCOUNTANCY
1st SEMESTER │A.Y. 2024 - 2025
Recognition
The following are not government assistance and Government grants are recognized if there is
therefore are neither disclosed nor recognized: reasonable assurance that:
a. Public improvements that benefit the entire a. the attached conditions will be complied with; and
community – If the government builds a new It Will Meet the Conditions – The business needs to
road or park, it might help local businesses by be sure it can meet any requirements attached to the
attracting more people or making grant, like using the money for a specific purpose or
transportation easier. But because the meeting certain goals.
improvement benefits everyone in the area, b. the grants will be received
not just one business, it’s not considered It Will Actually Receive the Grant – The business
government assistance. should be reasonably certain that the government will
Example: A new road built by the government makes it pay or transfer the grant as promised.
easier for people to reach a mall. While the mall might
see more visitors, this road benefits all nearby The mere receipt of a grant is not conclusive evidence
businesses and residents, so it’s not counted as specific that the attached condition has been or will be
assistance to the mall.
satisfied.
(Simply getting the grant isn’t enough proof that all
b. Imposing trading constraints on
conditions are met or will be met in the future.)
competitors – Sometimes, the government
may limit certain activities of a business’s
Example: Suppose a company receives a grant from
competitors, like restricting foreign
the government to build a new factory, with the
companies from selling certain products. This
condition that the factory will create at least 100 new
can indirectly help local businesses, but since
jobs. The company can only record this grant in its
the government isn’t directly helping any
financial statements if it’s confident it can meet the job
specific business, it’s not seen as government
requirement and that the government will provide the
assistance.
full amount promised. However, just receiving the grant
Example: If the government sets high import taxes on
money doesn’t guarantee the company will meet the
foreign goods, local businesses may benefit because
job requirement, so it has to plan and work to fulfill this
their products are now more competitively priced.
condition.
However, this isn’t counted as direct government
support to the local businesses; it’s just a trade policy.
Types of government grants according to attached
condition
PAS 20 provides the following reasons why the receipt
1. Grants related to assets - grants whose
of government assistance may be significant in the
primary condition is that the recipient entity
preparation of the financial statements:
should acquire or construct long-term assets.
1. If resources are received, an appropriate accounting
method is necessary to account for the receipt; and
These grants are given on the condition that the
Recording the Resources Properly – If a business
business uses the support to buy or build long-term
receives resources (like money, land, or other support),
assets (like buildings or equipment).
it needs a clear way to record this. Properly accounting
Examples:
for these resources helps show what the business
a. cash is received from the government with
actually received and how it affects its finances.
the condition that the amount should be used
Example: If a company gets a grant to buy new
to acquire equipment
equipment, it should record the grant in its financial
The government gives a company cash, but the
statements. This helps show where the money came
condition is that the money has to be used to buy new
from and makes it clear that part of the equipment’s
equipment.
cost was covered by the government.
b. land is received from the government with
the condition that a building should be
2. The indication of the extent to which the entity has
benefited from the assistance during the period constructed on it.
improves the comparability of its financial statements. The government provides a piece of land to a business
Showing How Much the Business Benefited – with the condition that the company has to build a new
Recording government assistance also helps show how facility on it.
much the business gained from this support. This 2. Grants related to income - grants other than
information is important because it lets investors and those related to assets. (PAS 20.3)
others compare the business to others more fairly. These are grants that help with costs but don’t require
Example: If two companies in the same industry the business to acquire or build specific assets. They
received different amounts of government help, are used for other purposes, like covering expenses or
recording the amount each received lets people see helping with operating costs.
the true financial position of each company. This helps
in comparing their performance more accurately. Examples:

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 CFAS
PAS 20 - ACCOUNTING FOR GOVERNMENT GRANT AND DISCLOSURE OF GOVERNMENT
ASSISTANCE
BANGCORO, SHERIE ANNE – BACHELOR OF SCIENCE IN ACCOUNTANCY
1st SEMESTER │A.Y. 2024 - 2025
● A company receives a grant to cover some of fair value) might be market value, the
its research and development expenses. $48,000 due to inflation business might record it
● The government provides funds to a business or other factors. The at a nominal amount,
to support employee training programs business would record such as $1, just to
without requiring it to buy specific assets. $48,000 as the grant’s recognize that it
current value. received the asset
In short, asset-related grants are for purchasing or without focusing on the
building long-term items, while income-related grants exact value.
help with general costs.
In summary, monetary grants are recorded based on
MEASUREMENT the amount received or fair value if not yet received,
When a business receives a government grant, it needs while non-monetary grants (like land) can be recorded
at their market value or a simple nominal amount,
to decide how to measure or record the value of that
grant in its financial records. The way it measures this depending on the company’s choice.
value depends on whether the grant is in cash (a
Fair value is "the price that would be received to sell
monetary grant) or something else like land or
equipment (a non-monetary grant). an asset or paid to transfer a liability in an orderly
transaction between market participants at the
MONETARY GRANTS NON-MONETARY measurement date." (PAS 20.3)
GRANTS (e.g land and
other resources) Government grants may also be in the form of loan,
such as:
a. amount of cash a. fair value of the a. Forgivable loan - a loan that the lender
received; or non-monetary, asset (government) waives repayment subject to certain
received; or conditions; or
If the government gives
a business a specific The business can : This is a loan the government gives to a business, but
cash amount, that exact measure the asset the government agrees to waive (cancel) the
amount is recorded in based on its fair value, repayment if the business meets certain conditions.
the business’s financial meaning its current
statements. market value. Example: The government lends $100,000 to a
company to expand its operations, with the condition
Example: The Example: The that the company must create 50 new jobs. If the
government gives a government gives a company fulfills this requirement, it doesn’t have to
business $50,000 to help business a piece of land pay back the loan. Essentially, the loan becomes a
with building costs. The with a market value of grant once the conditions are met.
business records exactly $100,000. The business
$50,000 as the value of records the land at its b. Loan at below-market rate of interest or
the grant. fair value, $100,000. zero-interest

b. fair value of amount b. alternatively, at : In this case, the government gives a loan with very
receivable nominal amount low interest or no interest at all, making it cheaper
than a regular bank loan. This helps the business save
If the business expects Nominal Amount: money on interest costs.
to receive a cash grant Alternatively, the Example: A company needs a loan of $50,000, and the
in the future but hasn’t business can record the government provides it with a loan at 1% interest
received it yet, it can asset at a minimal or instead of the usual 5% charged by banks. This allows
record the fair value of “nominal” amount, like the company to pay much less in interest, helping it
the expected amount. $1. This approach is invest more in its projects.
Fair value is the sometimes used when
estimated current worth the business wants to REMEMBER
of what the business will keep things simple or if ● A forgivable loan is measured at the carrying
receive. the asset’s value is hard amount of the loan forgiven.
to measure precisely. : When a forgivable loan is canceled (forgiven) by the
Example: A business government because the company met the required
expects to receive a Example: If a local conditions, the company records the loan amount
government cash grant government gives a that’s forgiven. This “carrying amount” is essentially
of $50,000 next year, business land that the original amount of the loan that is no longer
but the value today (the doesn’t have a clear repayable.

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 CFAS
PAS 20 - ACCOUNTING FOR GOVERNMENT GRANT AND DISCLOSURE OF GOVERNMENT
ASSISTANCE
Example: BANGCORO, SHERIE ANNE – BACHELOR OF SCIENCE IN ACCOUNTANCY
A business 1st SEMESTER │A.Y. 2024 - 2025
receives a $200,000 forgivable loan from the of that grant as income
government to build a new facility, with the condition Example: Suppose a each year over five
that it must hire at least 100 employees. Once the business receives a years. This means that
company meets this requirement, the government government grant of the grant will gradually
forgives the loan. In the financial records, the business $100,000 to support a affect the profit
would recognize $200,000 as a government grant new project. Instead of reported each year,
because that’s the amount it no longer has to repay. recording this grant as showing up in the
income that affects the income statement as
● The benefit of a loan at below-market rate profit for that period, $20,000 income
of interest or zero-interest is measured as the company could annually.
the difference between the initial carrying record it in equity. This
amount of the loan determined in might show up in a
accordance with PFRS 9 Financial separate section of the
Instruments and the proceeds received. balance sheet,
: When the government provides a loan at a very low or indicating that the grant
zero-interest rate, the benefit is calculated as the supports future projects
difference between the loan’s initial carrying amount without affecting
(its value based on regular market interest rates) and current profits.
the amount actually received (proceeds). This PAS 20 uses the income approach. The capital
difference represents the “grant” or financial benefit approach is used only when donations are received
from the government. from shareholders.

Example: A business receives a $100,000 loan from the PAS 20, the accounting standard for government
government with zero interest. If a similar loan from a grants, primarily uses the Income Approach. This
bank would normally have a 5% interest rate, the means that when businesses receive government
carrying amount of this loan might be around $95,000 grants, they generally record them as income over
(reflecting the loan’s present value, or what it would be time, affecting their profits.
worth with 5% interest). The difference between the
carrying amount ($95,000) and the proceeds received However, the Capital Approach is specifically used
($100,000) is $5,000. This $5,000 difference is recorded for donations received from shareholders.
as a government grant because it represents the
benefit of getting the loan at a zero-interest rate. Example of Shareholder Donations: If a company
gets a $30,000 donation from its shareholders to help
expand its business, it might choose to recognize that
Approaches to Accounting for Government Grant amount as equity rather than income. This means the
donation would not show up as revenue in the income
CAPITAL APPROACH INCOME APPROACH statement, thus not affecting the profits.

Accounting for government grants

- grant is - grant is
Government grants are "recognized in profit or loss on
recognized recognized in
a systematic basis over the periods in which the entity
outside profit profit or loss
recognizes as expenses the related costs for which the
or loss or in over one or grants are intended to compensate." (PAS 20.12)
equity. more periods.
- This means the - This method Government grants should be recorded in the financial
grant does not treats the statements in a way that matches the timing of the
directly impact grant as part expenses they are meant to support. This is called the
the income of the “matching concept” in accounting, which ensures that
statement company’s income from the grant is recognized only when the
(which shows income, related expenses are also recognized.
profits and impacting the
losses) but can profits directly. Example: If a company receives a government grant
be recorded in to help pay for equipment, it can only recognize that
a way that Example: If a company grant as income when it records the depreciation
affects the receives a government expense for that equipment in its financial statements.
company’s grant of $100,000 for
equity (the purchasing equipment, Simply stated, the accounting for government grant
owners’ and it chooses to use the uses a 'matching' concept such that, if the related
interest in the Capital Approach, it expense is not yet recognized, income from
company). might recognize $20,000 government grant is also not yet recognized.
Accordingly:

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 CFAS
PAS 20 - ACCOUNTING FOR GOVERNMENT GRANT AND DISCLOSURE OF GOVERNMENT
ASSISTANCE
a. Grants BANGCORO, SHERIE ANNE – BACHELOR OF SCIENCE IN ACCOUNTANCY
related to 1st SEMESTER │A.Y. 2024 - 2025
depreciable assets are "recognized in profit or loss
over the periods and in the proportions in which Recognizing government grants in profit or loss on a
depreciation expense on those assets is recognized." receipts basis (e.g., cash basis) is prohibited as it
(PAS 2017) violates the accrual basis of accounting. A receipts
basis would only be acceptable if there is no allocation
: If a government grant is given for a depreciable asset basis other than the one in which the grant was
(like machinery or equipment), the grant should be received.
recognized in profit or loss in line with the depreciation
of that asset. This means that as the asset loses value Grants should not be recognized based on when cash is
over time (through depreciation), the grant income is received (the “receipts basis”) because this would go
also recorded gradually. against the accrual basis of accounting. The accrual
basis requires that revenues and expenses be
Example: A company receives a grant of $40,000 to recognized when they are incurred, not necessarily
purchase a piece of equipment that it will depreciate when cash changes hands.
over five years. Each year, if the equipment
depreciates by $8,000, the company would recognize Example: If a company receives a $50,000 grant in
$8,000 of the grant income in its profit or loss cash but has not yet incurred any related expenses, it
statement each year, matching it with the depreciation cannot record that grant as income immediately. It
expense. must wait until it incurs expenses that the grant is
intended to support. Recognizing the grant as income
b. Grants related to non-depreciable assets are simply because the cash was received would not
recognized in profit or loss when the costs of fulfilling comply with the accrual accounting principles.
the attached condition are incurred. For example, a
grant of land conditioned on the construction of a Illustrations
building on it is recognized over the perioas that
the constructed building is depreciated.

: For grants related to non-depreciable assets (such as

land), the income from the grant is recognized in profit
or loss when the company incurs costs to fulfill the
conditions attached to the grant.

Example: Suppose a government gives a company

land with the condition that it must build a new facility
on it. The company recognizes the grant income in its
profit and loss statement over the same periods as the
building is depreciated. If the building is expected to
be depreciated over 20 years, then the grant will be
recognized gradually in the profit or loss statement
over those same 20 years.

c. Grants received as financial aid for expenses or

losses already incurred are recognized immediately in
profit or loss when the grant becomes receivable
(because the related costs have already been
expensed).

: If a grant is received to compensate for expenses or

losses that have already happened, the company can
recognize that grant income immediately when it
becomes receivable. Since the related costs have
already been recognized as expenses, the grant can be
recorded right away.

Example: If a company experiences a loss from a

natural disaster and later receives a government grant
of $100,000 to cover those losses, it can recognize the
full $100,000 as income immediately in its profit and
loss statement as soon as the grant is approved, since
the costs related to the loss have already been
recorded.

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CFAS
PAS 20 - ACCOUNTING FOR GOVERNMENT GRANT AND DISCLOSURE OF GOVERNMENT
ASSISTANCE
BANGCORO, SHERIE ANNE – BACHELOR OF SCIENCE IN ACCOUNTANCY
1st SEMESTER │A.Y. 2024 - 2025

PRESENTATION
Grants related to assets
Grants related to assets may be presented either by
gross presentation or net presentation as follows:

Statement of Financial Position

Gross Presentation Net Presentation

The grant is presented as The grant is deducted

a deferred income from the carrying amount
(liability) of the related asset

Statement of Comprehensive Income (profit or loss

section)

Gross Presentation Net Presentation

The income from the The income from the

grant is reported grant is deducted from
separately or included in the depreciation charge.
'Other income.'

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 above.

Grants related to income

Grants related to income may also be presented either
by gross presentation or net presentation as follows:

Statement of Comprehensive Income (profit or loss

section)

Gross Presentation Net Presentation

The income from the The income from the

grant is reported grant is deducted from
separately or included in the related expense.
'Other income.'

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 CFAS
PAS 20 - ACCOUNTING FOR GOVERNMENT GRANT AND DISCLOSURE OF GOVERNMENT
ASSISTANCE
BANGCORO, SHERIE ANNE – BACHELOR OF SCIENCE IN ACCOUNTANCY
1st SEMESTER │A.Y. 2024 - 2025
● Additionally, the business must recognize any
extra depreciation that would have occurred
Repayment of Grants without the grant as an immediate expense in
A government grant that becomes repayable, for profit or loss.
example, due to failure to satisfy the attached
condition, is treated as a change in accounting Example: If a company received a grant of $100,000
estimate and accounted for prospectively. to buy equipment worth $500,000 and later has to
repay $20,000, it reduces the deferred income by
● If a business receives a government grant $20,000. If the grant resulted in lower depreciation
with conditions (like creating jobs or over the years, the company would recognize that
achieving certain sales) and fails to meet additional depreciation in its profit statement right
those conditions, the grant must be repaid. away.
● This situation is considered a “change in
accounting estimate.” This means the Following the repayment, the entity may need to
business has to adjust its financial statements consider the possibility of impairment of the new
based on new information or circumstances. carrying amount of the asset.
● Prospectively- applies changes to current and
future periods only. ● After repaying a grant, the company must
assess if the carrying value of the asset (its
Example: A company receives a grant of $100,000 to book value) is still appropriate. This process is
create 10 new jobs. If it only creates 5 jobs, it might called “impairment testing,” which checks if
have to repay a portion of the grant. This repayment is the asset’s value has decreased significantly.
not recorded as a previous loss but rather as an
adjustment going forward in its financial records. Example: If the same company has machinery that
was bought for $500,000 (with the grant) and now it is
The repayment of a grant related to income is outdated or damaged, the company would need to
deducted from the related deferred income balance, if evaluate whether the machinery is worth less than its
any. Any excess is recognized immediately as in profit recorded value. If it is, they must adjust the asset’s
or loss. value downwards, impacting the profit or loss
statement.
● When a business repays a grant related to
income (like a grant used to cover In summary, the treatment of government grants can
operational costs), it first reduces any have significant effects on a company’s financial
deferred income (income that has been statements, especially when repayment becomes
received but not yet recognized in necessary. Each of these points ensures that the
profit/loss). company’s financial records accurately reflect its
● If the repayment is more than the deferred economic realities.
income, the excess amount is recorded
immediately as a loss in the profit or loss Disclosure
statement. a. Accounting policy and method of
presentation
Example: If a business received $50,000 in grants for : This refers to how a company records and shows its
operational expenses but has $30,000 left as deferred government grants in its financial statements. The
income when it repays $40,000, it would deduct the company must explain its accounting policies clearly
$30,000 from deferred income and recognize the so that anyone reading the financial statements can
remaining $10,000 as a loss in its profit statement. understand how the grants are treated.

The repayment of a grant related to asset is treated as Example: A company might state in its financial notes
a reduction in the deferred income balance or an that it recognizes government grants as income when
increase in the carrying amount of the asset. The it meets the conditions set by the government, and it
cumulative additional depreciation that would have shows the grants as either income or a reduction in
been recognized in the absence of the grant is expenses depending on the type of grant. For instance,
recognized immediately in profit or loss. if it receives a $50,000 grant for research and
development, it might record this grant as a reduction
● For grants tied to assets (like funding for in R&D expenses in its profit and loss statement.
machinery), the business adjusts the asset’s
value on its balance sheet. b. Nature and extent of government grants
● The repayment reduces the deferred income and other forms of government assistance
related to that asset or increases the asset’s from which the entity has directly
carrying amount. benefited

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 CFAS
PAS 20 - ACCOUNTING FOR GOVERNMENT GRANT AND DISCLOSURE OF GOVERNMENT
ASSISTANCE
: This BANGCORO, SHERIE ANNE – BACHELOR OF SCIENCE IN ACCOUNTANCY
requires 1st SEMESTER │A.Y. 2024 - 2025
the company to disclose details about the types of
government grants and assistance it has received. This
includes how much money was received, what the
grants are for, and how the company benefited from
them.

Example: A company might disclose that it received

$200,000 in grants for environmental initiatives and
$100,000 for employee training programs. The
company should specify how these grants were used,
such as purchasing eco-friendly equipment or
providing skill development courses for its employees.

c. Unfulfilled conditions and contingencies

attached to the government grants
: Companies must also disclose any conditions they
haven’t yet met that were attached to the grants. This
information is important because it indicates the risk
of having to repay the grant if conditions aren’t
fulfilled.

Example: If a company received a $150,000 grant to

expand its manufacturing facility, but it hasn’t yet
completed the facility expansion, it should disclose this
unfulfilled condition. The company might state, “As of
the reporting date, the company has not yet
completed the expansion project, which is required to
fulfill the conditions of the $150,000 grant. If the
project is not completed within the stipulated time
frame, the company may be required to repay the
grant.”