Government grants

Government Grants - IAS 20

Government assistance given in the form of a transfer of resources in return for past or future compliance

Can be income (50,000 for operating expenses) or assets (10,000 for a car)

Recognition of government grant criteria (2)

1. Entity complies with conditions

2. Grant is received

   1. can occur prior to compliance as long as there is reasonable assurance it will be met

If only the 1st criteria is met, record as grant receivable and recognize as grant is received

If only the 2nd criteria is met, record as deferred grant liability and recognize as 1st criteria is met

Initial measurement of grants

Measure at fair value, unless non-monetary

Non-monetary grants can be recognized at fair value or nominal amount (IAS 20)

• under ASPE 3800 only fair value can be used

Grants related to income

Resources to cover expenses (ex: salaries and wages)

• grant is recognized as the related expense is incurred

• Dr. Cash

  • Cr. Grant revenue

Grants related to assets

Covers the purchase of asset(s)

• initially deferred and then recognized as income over same period necessary to compensate for related costs (ex: depreciation)

Ex: 100,000 grant for 250,000 equipment @ 10 year life

Depreciation = (250,000/10) = 25,000

Grant per year = (100,000/10) = 10,000

• Dr. Cash - 100K

  • Cr. Deferred grant revenue

• Dr. Depreciation expense - 25K

  • Cr. Asset-PPE

• Dr. Deferred grant revenue - 10K

  • Cr. Grant revenue

Government loans

Forgivable loans are treated as grants - same criteria

Repayable with favourable interest

• Record using effective interest method, difference is booked to grant revenue

• Dr. Cash

  • Cr. Loan @ eff. int

  • Cr. Grant revenue

Non-monetary grants

Once value is determined, follow same recognition guidance

Derecognition of grants

Immediately when grant becomes repayable

Grants: gross vs net

Gross Method

• Presents as other income

Net method

• Presents as deduction from related expense

• Ex: Depreciation

Grants IFRS vs ASPE

IFRS allows for nominal amounts for non-monetary and cumulative effect of repayable grant is recognized in income

ASPE accounts for repay ability using a prospective approach