4. IAS 20 Gov Grants and Assistance

What does IAS 20 cover?

Accounting for government grants and disclosures of government assistance.

When recognise a government grant?

Reasonable assurance conditions will be met AND grant will be received.

What is a capital grant?

Assistance linked to acquiring/construction of an asset.

What is a revenue grant?

Assistance intended to compensate income-related expenses/losses.

Two IAS 20 asset grant methods?

Deferred income or deduct grant from the asset's carrying amount.

Immediate deduction method?

Reduce PPE by grant; calculate depreciation on lower cost.

Deferred income method?

Keep PPE at full cost; release deferred grant income systematically.

How are revenue grants recognised?

In P/L over the periods of the expenses they compensate.

When recognise past-cost compensation?

In P/L when it becomes receivable if no future related costs.

What is grant matching?

Recognise grant income in periods of the related expenses.

Net PPE under deduction method formula?

Asset purchase cost − capital grant.

Annual grant release formula (straight-line)?

Grant ÷ relevant asset useful life, if even release matches depreciation.

Annual depreciation under net method?

(PPE cost − capital grant − relevant residual value) ÷ useful life.

Normal balance of deferred grant income?

Credit-normal liability: Cr ↑ increases; Dr ↓ decreases.

Normal balance of Bank?

Debit-normal asset: Dr ↑ increases; Cr ↓ decreases.

Normal balance of PPE?

Debit-normal asset: Dr ↑ increases; Cr ↓ decreases.

Normal balance of depreciation expense?

Debit-normal expense: Dr ↑ increases; Cr ↓ decreases.

Normal balance of accumulated depreciation?

Credit-normal contra-asset: Cr ↑ increases; Dr ↓ decreases.

Normal balance of grant income?

Credit-normal income: Cr ↑ increases; Dr ↓ decreases.

Receive deferred capital grant €50k: journal?

Dr Bank €50k ↑; Cr Deferred income €50k ↑. Cash received; income deferred.

Receive net-method capital grant €50k: journal?

Dr Bank €50k ↑; Cr PPE €50k ↓. Reduce depreciable asset cost.

Release deferred grant €10k: journal?

Dr Deferred income €10k ↓; Cr Grant income €10k ↑.

Depreciation journal €60k?

Dr Depreciation expense €60k ↑; Cr Accumulated depreciation €60k ↑.

Lecturer Q1: PPE €300k, grant €50k, 20%. Net method cost?

€300k − €50k = €250k.

Lecturer Q1: annual depreciation under net method?

€250k × 20% = €50k.

Lecturer Q1: annual gross PPE depreciation under deferred?

€300k × 20% = €60k.

Lecturer Q1: annual deferred grant release?

€50k × 20% = €10k.

Lecturer Q1: net annual P/L expense under deferred?

€60k depreciation − €10k grant income = €50k.

Lecturer Q1: deferred grant after year 1?

€50k − €10k = €40k liability.

Revenue grant €30k covers 3 equal years: annual income?

€30k ÷ 3 = €10k each year if equal matching is appropriate.

Revenue grant for uneven costs: release method?

Allocate in proportion to related costs, not automatically straight-line.

Proportional grant release formula?

Total grant × (period relevant cost ÷ total relevant costs).

Brilliant Q5: grant €10m, year 1 costs €2m of total €30m.

Year 1 release = €10m × (2/30) = €0.667m approximately.

Exuberant Q6: €100m grant; 75% building. Capital portion?

€100m × 75% = €75m.

Exuberant Q6: building grant €75m over 50 years. Release?

€75m ÷ 50 = €1.5m annually, assuming straight-line matching.

Non-monetary grant: how measure?

Normally fair value, or nominal amount for asset and grant under IAS 20.

What is unmeasurable government assistance?

Support like free technical advice may not be recognised; disclose nature/extent.

What happens when a grant is repayable?

Treat as change in estimate; reverse remaining deferral and expense excess.

Deferred grant repay €50k; balance €35k: journal?

Dr Deferred income €35k ↓; Dr Expense €15k ↑; Cr Bank €50k ↓.

Net method repayment: what changes?

Dr PPE ↑ for repayment; Cr Bank/payable ↓/↑; catch up extra depreciation.

Net repayment catch-up depreciation?

Depreciation on original cost − depreciation on grant-reduced cost for prior periods.

What must be disclosed under IAS 20?

Grant policy; nature/extent; other assistance; unfulfilled conditions/contingencies.

Can a government grant be credited to share capital?

No. Recognise under IAS 20; grants aren't shareholder contributions.

IAS Plus: a below-market government loan?

Benefit of below-market interest is treated as a government grant (IAS 20.10A).

IAS 20 vs FRS 102: asset-grant presentation?

Your slides emphasise FRS 102 deferral; IAS 20 also permits net deduction.

What is the common IAS 20 exam trap?

Recognising all grant proceeds as immediate sales/income regardless of conditions.