Government Grant

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The discussion begins with government assistance, defined by PAS 20 as government actions designed to provide economic benefits, specifically to individual entities. Examples of government assistance include free technical or marketing advice, provision of guarantees, and government procurement policies that favor a specific entity. Conversely, actions that benefit the general public, such as infrastructure improvements or broad market regulations, are not considered specific government assistance.

Government grants are a subset of government assistance, characterized by the 'transfer of resources' (cash or non-cash assets) with certain conditions. The key distinction is that grants can be reasonably measured. All government grants are government assistance, but not all government assistance are government grants. PAS 20 applies to accounting for and disclosure of government grants, and disclosure of government assistance. Government grants related to biological assets are an exception, falling under PAS 41 (Agriculture).

Government grants are recognized when there is 'reasonable assurance' that the entity will comply with conditions and that the grant will be received. The standard emphasizes reasonable assurance, not certainty. Measurement depends on the type of grant. Monetary grants (like cash or forgivable loans) are measured at face value or present value. Non-monetary grants (like PPE or intangible assets) are measured at fair value or nominal amount plus direct costs. All grants are initially credited to 'deferred income from government grants' until related expenses are incurred, following the matching concept.

Government grants are categorized as either 'grant related to assets' (intended for purchasing or constructing long-term assets) or 'grant related to income' (all other grants). Presentation can be either 'gross' or 'net.' For gross presentation, the grant is initially a liability (deferred income) and later recognized as income separately in profit or loss. For net presentation, the grant reduces the cost of the asset or the related expense, directly impacting depreciation or expenses. Regardless of presentation method, the net amount recognized in profit or loss should be the same.

Repayment of government grants occurs when conditions are not met and is accounted for as a change in accounting estimate, applied prospectively. Approach 1 is used when there is a balance in the deferred income from government grants (DIGG) account. The repayment is first applied against any DIGG balance, and any excess is recognized immediately as an expense. This approach is generally for grants related to income (gross or net presentation) and grants related to assets under gross presentation. The cash repaid reduces the DIGG and any remaining portion is recognized as a 'loss on repayment'.

Approach 2 applies to grants related to assets under net presentation, where there is no existing DIGG balance. This approach involves two steps: first, increasing the carrying amount of the asset (by the repaid grant amount) and updating the accumulated depreciation. Second, recognizing cumulative additional depreciation that would have been recorded if the grant had not been received, effectively reversing the benefit of the grant on depreciation. This restores the asset's carrying amount and depreciation expense to what they would have been without the grant.