IAS 20: Government Grants and Financial Reporting

[Adam Josh]

IAS 20 provides guidance on how organizations should account for and disclose overnment grants and assistance. The standard ensures that such funding is reported clearly and consistently, helping users understand its impact on financial performance. A grant is only recognized when there is reasonable assurance that the conditions will be met and the grant will be received.

Grants related to income are recorded in profit or loss over the same period as the related expenses, helping to match costs and funding properly. For grants related to assets—such as funds to acquire machinery or construct buildings—entities can either record them as deferred income or subtract the grant from the asset’s value. In both cases, the benefit is spread over the asset’s useful life.

If a grant becomes repayable, for example due to non-compliance with conditions, it is accounted for as a change in estimate. Non-cash grants, like donated land or equipment, are typically measured at fair value.

Transparency is crucial. Entities must disclose the nature of the grants, how they are recognized, any conditions that remain to be fulfilled, and the overall impact of funding on their financial results. IAS 20 ensures that government assistance is accurately reflected in the financial statements.

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