IAS 20

IAS 20 is an International Accounting Standard issued by the International Accounting Standards Board (IASB) that prescribes the accounting for, and disclosure of, government grants and other forms of government assistance.^[1] The standard is based on the principle that government grants should not be recognized until there is reasonable assurance that the entity will comply with the conditions attaching to them and that the grants will be received.^[2]

Core Principles

IAS 20 prohibits the "capital approach"—where grants are credited directly to shareholders' interests. Instead, it requires the "income approach," under which grants are recognized in profit or loss on a systematic basis over the periods in which the entity recognizes as expenses the related costs that the grants are intended to compensate.^[3]

Classification of Government Grants

The standard distinguishes between two main types of grants, each with specific accounting treatments:^[4]

Grants Related to Assets

These are government grants whose primary condition is that an entity qualifying for them should purchase, construct, or otherwise acquire long-term assets.^[5] There are two acceptable methods for presenting these in the balance sheet:^[6]

• Deferred Income: Recognizing the grant as deferred income, which is then recognized in profit or loss on a systematic basis over the useful life of the asset.
• Deduction from Asset: Deducting the grant in arriving at the carrying amount of the asset. The grant is then recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense.

Grants Related to Income

These are grants other than those related to assets. They are presented as part of profit or loss, either separately or under a general heading such as "Other income"; alternatively, they are deducted in reporting the related expense.^[7]

IAS 20 Presentation Methods

Type of Grant	Presentation Option A	Presentation Option B
Asset Grant	Deferred Income (Liability)	Deduction from Asset Carrying Value
Income Grant	Gross Credit (Other Income)	Net Credit (Deducted from Expense)

Non-monetary Government Grants

A government grant may take the form of a transfer of a non-monetary asset, such as land or other resources, for the use of the entity. In these circumstances, it is usual to assess the fair value of the non-monetary asset and to account for both the grant and the asset at that fair value.^[8] An alternative course that is sometimes followed is to record both asset and grant at a nominal amount.^[9]

Repayment of Government Grants

A government grant that becomes repayable is accounted for as a change in accounting estimate (see IAS 8).^[10]

• Repayment of a grant related to income is applied first against any unamortized deferred credit.
• Repayment of a grant related to an asset is recorded by increasing the carrying amount of the asset or reducing the deferred income balance.^[11]

Government Assistance

Excluded from the definition of government grants are certain forms of government assistance which cannot reasonably have a value placed upon them, such as free technical or marketing advice and the provision of guarantees.^[12]