(a) IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
distinguishes between grants relating to assets and grants related to income.
Both are recognised in the financial statements (initially in the statement of financial position)
when there is reasonable assurance that any conditions will be complied with and the grant will be
received.
Grants relating to assets are recognised in profit or loss as the asset acquired is depreciated,
either by reducing the base cost of the asset by the amount of the grant received, or by treating
the grant as deferred income and amortising the deferred credit to profit or loss as the asset
acquired is depreciated.
Grants relating to income are recognised in profit or loss in the same period as the expenses they
are intended to compensate.
The IASB Conceptual Framework for Financial Reporting defines a liability as 'a present obligation
of the entity arising from past events, the settlement of which is expected to result in an outflow
from the entity of resources embodying economic benefits'.
Income is defined as 'increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in equity,
other than those relating to contributions from equity participants.'
Therefore government grants that never become repayable would be classed as income not a
liability (deferred income) under the Conceptual Framework. Note that this does not necessarily
mean immediate recognition in profit or loss. Theoretically, a possibility would be recognition in
other comprehensive income, although recognition in profit or loss seems more appropriate as
that is where the depreciation of the granted asset is charged.
The IASB Conceptual Framework requires elements of financial statements to be recognised
when it is probable that there will be an inflow or outflow of economic benefits and the item has a
cost or value that can be measured with reliability.
IAS 20 was issued in 1983, several years before the original conceptual framework, the
Framework for the Preparation and Presentation of Financial Statements was published in 1989.
It requires recognition when there is reasonable assurance that the conditions will be met and the
grant received. Practically this may not make a significant difference to application of the
Conceptual Framework probability criterion. |
