CHAPTER 15 – PAS 20

Government Grant
GOVERNMENT GRANT
PAS 20, paragraph 3 defines government grant as assistance by government in the form of transfer of
resources of an entity in turn for part or future compliance with certain conditions relating to the
operating activities of the entity.

Recognition and measurement

Government grant shall be recognized when there is reasonable insurance that:
a. The entity will comply with the conditions attaching to the grant.
b. The grant will be received

Government grant shall not be recognized on a cash basis as this is not consistent with generally
accepted accounting practice.

Classifications of government grant

a. Grant related to asset
This is government grant whose primary condition is that an entity qualifying for the grant shall
purchase, construct or otherwise acquire long-term asset.

b. Grant related to income

By residual definition, this is government grant other than grant related to asset.

Accounting for government grant

Government grant shall be recognized as income on systematic basis over the periods in which an entity
recognizes as expenses the related costs for which the grant is intended to compensate.

In other words, the grant is taken to income over one or more periods in which the related cost is
incurred.

Government assistance is action by government designed to provide an economic benefit specific to an

entity or range of entities qualifying under certain criteria.

The essence of government agency is that no value can reasonably be placed upon it. Examples of
government assistance are:

a. Free technical or marketing advice

b. Provision of guarantee
c. Government procurement policy that is responsible for a portion of the entity's sales.

Government assistance does not include the following indirect benefits or benefits not specific to an
entity:
a. Infrastructure in development areas such as improvement to the general transport and
communication network
b. Imposition of trading constraints on competitors
c. Improved facilities such as irrigation for the benefit of an entire local community

Disclosures about government grant

a. The accounting policy adopted for government grant including the method of presentation adopted
in the financial statements.

b. The nature and extent of government grant recognized in the financial statements and an indication
of other forms of government assistance from which the entity has directly benefited

c. Unfulfilled conditions and other contingencies attaching to government assistance that has been
recognized.

It is not required to lose the name of the government agency that gave the grant along with the date of
sanction of the grant by such government agency and the date when cash was received in case of
monetary grant.

SOURCE/S:

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS 2019 EDITION (VALIX)

-Vince Pereda