An Executive Guide to IFRS: Content, Costs and Benefits to Business

Government grants

In agriculture, as well as other areas, government grants may well be an important form of revenue. IAS 20 Accounting for Government Grants and Disclosure of Government Assistance specifies that government grants should be released to the profit and loss account systematically over the periods meant to benefit from them. Where the grant is a revenue grant, meant to compensate for costs incurred by the business, the grant is recognized in the income statement at the same time as the related costs. Where the government gives a grant to subsidize the purchase of an asset, the standard allows two treatments. Either the grant is set up as a deferred credit and is released over the same period as the related asset is depreciated, or the grant is offset directly against the asset, thereby reducing the depreciation charge directly.

Sometimes grants are given on a contingent basis – they have to be paid back if the recipient fails to carry out some promised activity. In this case the standard says that grant is recognized when there is reasonable assurance that the entity will comply with the conditions. In a similar way, government support is sometimes given through loans that may be at an artificially low interest rate, or may eventually be forgiven. Where the interest rate is subsidized, the difference between that and a commercial rate has to be recognized as a government grant. A forgivable loan is recognized as a grant when it becomes reasonably certain that the ...