Pas 20

Accounting for
Government Grants and

Disclosure of Government
Assistance
Related standard: PAS 20
Learning Objectives
1. Account for Government Grants.
2. Explain the presentation of government
grants in the financial statements.
Definition
Government Grants:
These pertain to assistance by the government in the form of transfers of

resources to an entity in return for past or future compliance with certain
conditions relating to the operating activities of the entity.
They exclude those forms of government assistance which cannot

reasonably have a value placed upon them and transactions with
government which cannot be distinguished from the normal trading
transactions of the entity.
Definition
Examples of Government Grants:
a. Receipt of cash, land or other non-cash assets from the government
subject to compliance with certain conditions
b. Receipt of financial aid in case of loss from a calamity
c. Forgiveness of an existing loan from the government
d. Benefit of a government loan with below-market rate of interest
Definition
The following are forms of government assistance but are not government
grants:
• Tax benefits
• Free technical or marketing advice
• Provision of guarantees
• Government procurement policy that is responsible for portion of the
entity's sales
Definition
The following are not government assistance and therefore are neither
disclosed nor recognized:
• Public improvements that benefit the entire community
• Imposition of trading constraints on competitors
Recognition
PAS 20, paragraph 7, further provides that government grants, including
non-monetary grant at fair value, shall not be recognized until there is
reasonable assurance that:
• The entity will comply with the conditions attaching to them.

• The grants will be received.
Accounting for Govt Grants
Government grants shall be recognized in profit or loss on a systematic basis
over the periods in which the entity recognizes as expenses the related
costs, including depreciation, for which the grant is intended to compensate.
Accounting for Govt Grants (Rules)
(a) Grants in recognition of specific expenses are recognized in profit or loss
in the same period as the related expenses.
(b) Grants related to depreciable assets are recognized in profit or loss over
the periods and in proportion of depreciation recognized on those assets.
(c) Grants related to non-depreciable assets shall be recognized in profit or
loss over the periods that bear the cost of meeting the obligations.
(d) A government grant that becomes receivable as compensation for
expenses or losses already incurred or for the purpose of giving immediate
financial support to the entity with no future related costs shall be
recognized in profit or loss of the period in which it becomes receivable.
Practice Problem – Matching concept
1. A start-up welfare entity receives P1M from the government. The purpose of
the grant is to help with general financing on startup. There are no further
conditions attached to the grant.
2. A super-typhoon struck the area where an entity operates, destroying
various properties. The entity received P10M from the government as
financial aid.
3. A manufacturing entity puts up a plant in an area of high unemployment. A
grant of P4M is receivable if it continues to employ at least 100 people over
a period of four years. It is highly probable that it will do so. Half of the grant
is to be received immediately and the remaining P2M is receivable in four
years' time.
Practice Problem – Matching concept
4. The government granted an agricultural land to a research entity to be used in
putting up a new laboratory intended for investigating new farming methods.
5. The government provided free technical advice to help an export entity in
marketing its new technology in foreign countries.
6. A local government made public improvements in the area where an entity
operates. The public improvements increased business in the area because it
became more accessible to customers. Also, the value of land in the area
increased.
7. An entity operating in an economic zone was awarded a tax holiday of 5 years
with the condition that the entity should continue to operate for at least 10
years and that it should employ only residents from the area.
Classification of Govt Grants
Classification Nature Presentation (Either)
Grants related Grants whose primary • Set up the grant as Deferred Income
to assets condition is that an entity and use a separate income or under a
qualifying for the grant shall general heading such as Other
purchase, construct or Income (Gross method)
otherwise acquire long-term • Deducted the grant in arriving at the
asset. carrying amount of the asset (Net
method)
Grants related Grants other than those • Set up the grant as Deferred Income
to income related to assets. and use a separate income or under a
general heading such as Other
Income (Gross method)
• Deducted in reporting the related
expenses (Net method)
Repayment of Govt Grants
A government grant that becomes repayable on demand due to non-compliance
with the agreement shall be accounted for as a change in accounting estimate.
Grants related to assets
Repayment of a grant related to an asset shall be recognized by:
• increasing the asset's carrying value, or
• lowering the deferred grant income balance by the amount repayable.
The cumulative additional depreciation that would have been recognized in

profit or loss to date in the absence of the grant should be recognized
immediately in profit or loss.
Grants related to income
Repayment of a grant related to income is accounted for by applying the
repayment first against any unamortized deferred grant income.
In cases where the repayment exceeds any existing deferred grant income or
deferred grant income does not exist, charge to loss on repayment of grant
which will be recognized in profit or loss.
Journal entry:
Deferred grant income xx
Loss on repayment of grant xx
Cash xx
Practice Problem
The Chinese government awarded a grant of P30,000,000 to a corporation for
the purchase of a vaccine facility with an estimated cost of P50,000,000 and a 5-
year useful life. Depreciation is calculated using the straight line approach.
Required:
What are the appropriate journal entries to properly account for the
transactions?
Practice Problem
The national government awarded an entity a grant of P4,000,000 to cover
safety and environmental costs over a five-year period which will lead to the
benefit of over 300 families surrounding the area. The manner of cost
expenditure allocation for first, second, third and fourth will be P1,000,000,
P1,200,000, P2,000,000 and P3,800,000, respectively.
Required:
transactions?
Practice Problem
The Thai government awarded a grant of P40,000,000 to an entity to
compensate for the significant damages caused by Typhoon Ozzy.
Required:
transaction?
Practice Problem
The national government grants an entity a big parcel of land in the National
Capital Region. The land has a fair market value of P15,000,000. The concession
stipulates that the entity build a stadium on the property. The stadium is
expected to cost P20 million and have a 20-year usable life.
Required:
transactions?
Practice Problem
On January 1, 2017, Jhongcook Company received a grant of P1,500,000 from
the government to subsidize tuition fees for a period of 5 years.
On January 1, 2019, the entity violated certain conditions attached to the grant,
and therefore had to repay fully such grant to the government.
Required:
a. What is the grant income for 2017?
b. What amount should be recognized as loss resulting from the repayment of
the grant in 2019?
Practice Problem
Taylor Sheesh Company received a government grant of P600,000 related to
depreciable asset acquired on January 1, 2017 for P6,600,000. This grant was
deducted from the cost of the asset with a useful life of 10 years and a residual
value of P500,000. On January 1, 2019, the grant became fully repayable due to
noncompliance with conditions.
Required:
a. What is the depreciation for 2017?
b. What is the depreciation for 2019?

Pas 20

Uploaded by

Copyright:

Available Formats

Pas 20

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Pas 20

Uploaded by

Copyright:

Available Formats

Accounting for

Government Grants and

These pertain to assistance by the government in the form of transfers of

They exclude those forms of government assistance which cannot

• The entity will comply with the conditions attaching to them.

The cumulative additional depreciation that would have been recognized in

You might also like