IAS 20 Government Grants and Government Assistance: Recognition, Presentation and Repayment

Governments often help businesses with cash, cheap loans or the transfer of assets. When an entity receives that help it must decide when the benefit counts as income, and how it affects the cost of any asset it paid for. International Accounting Standard (IAS) 20 Accounting for Government Grants and Disclosure of Government Assistance answers both questions.

This topic covers the definitions, the recognition test, the two types of grant, how each is presented, what happens when a grant has to be repaid, non-monetary grants and the disclosures. The next topic covers borrowing costs.

In the diets reviewed for this page, none of the questions read tests the topic directly. It is a short, calculation-friendly standard and appears as a part of longer questions, often next to depreciation. Read revaluation, derecognition and disclosure of property, plant and equipment first.

Definitions

Government assistance is action by government designed to provide an economic benefit specific to an entity or a range of entities that qualify under certain criteria. The purpose may be to encourage an action the entity would not otherwise take. It does not include benefits that come only indirectly from action affecting general trading conditions, such as building infrastructure in a development area.

A government grant is assistance by government in the form of a transfer of resources to an entity in return for past or future compliance with certain conditions relating to the entity’s operating activities. A grant may be a receipt of cash, a reduction in a liability, the benefit of a low-interest loan or a forgivable loan.

A forgivable loan is a loan the lender undertakes to waive repayment of under prescribed conditions. The form of the grant does not change how it is accounted for.

Two kinds of help are not government grants: assistance that cannot reasonably be given a value, such as free technical or marketing advice, and transactions with government that cannot be told apart from the entity’s normal trading, such as a government purchasing policy that supplies part of the entity’s sales. The benefit of a government loan at a below-market rate of interest is treated as a government grant.

It is measured as the difference between the proceeds received and the initial carrying amount of the loan under International Financial Reporting Standard (IFRS) 9.

Recognition

A grant is not recognised until there is reasonable assurance that:

1. the entity will comply with any conditions attached to the grant; and
2. the grant will be received.

Receiving the cash does not by itself prove that the conditions will be met. Once both tests are met, the grant is recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the costs the grant is meant to compensate. IAS 20 follows the income approach: a grant is income, and is spread to match the related costs.

It does not allow the capital approach, which would credit grants directly to equity, because grants are not contributions from shareholders and they are earned by meeting conditions.

Grants related to income and to assets

Grants related to assets are grants whose primary condition is that the entity buys, builds or otherwise acquires long-term assets. Subsidiary conditions may restrict the type or location of the assets or the periods in which they are acquired or held. Grants related to income are all other grants. In most cases the periods over which the related costs are recognised are readily found.

Grants for specific expenses are recognised in the same period as those expenses. Grants for depreciable assets are recognised over the periods and in the proportions in which depreciation is recognised.

Grants related to income

A grant related to income is taken to profit or loss over the periods needed to match it with the costs it compensates. IAS 20 allows two presentations: Method 1, include the grant for the period as other income; or Method 2, deduct the grant for the period from the related expense. A grant received before the costs are incurred is deferred income, a liability, split between current and non-current.

Illustration. A company receives a cash grant of ₦30,000 on 31 December Year 0 towards training apprentices. The programme runs for 18 months from 1 January Year 1, and the training costs are ₦50,000 in Year 1 and ₦25,000 in Year 2. At 31 December Year 0 the grant is a liability. In Year 1, 12/18 × ₦30,000 = ₦20,000 is recognised in profit or loss, leaving ₦10,000, which is current at the end of Year 1 and recognised in Year 2.

Under Method 1 the statements show other income of ₦20,000 in Year 1 and ₦10,000 in Year 2 beside the training costs of ₦50,000 and ₦25,000. Under Method 2 they show net training costs of ₦30,000 (₦50,000 − ₦20,000) and ₦15,000 (₦25,000 − ₦10,000).

A grant may instead be given to provide immediate financial support, with no future related costs. It is then recognised as income in the period in which it becomes receivable: Dr Cash or receivable, Cr Profit or loss.

Grants related to assets

IAS 20 allows two methods, which give the same effect on profit.

• Method 1: deduct the grant from the cost of the asset. The asset is carried at cost less the grant, and the net amount is depreciated.
• Method 2: deferred income. The asset is carried at full cost and depreciated normally. The grant is a liability, deferred income, released to profit or loss on a systematic basis over the asset’s useful life.

Illustration. An asset costs ₦1,000,000, has a useful life of 10 years and no residual value, and attracts a grant of ₦400,000. At the end of Year 1:

Under Method 2, ₦360,000 of the grant is left to recognise at ₦40,000 a year. The ₦40,000 due next year is current, and the other ₦320,000 is non-current.

Repayment of a grant

A grant that becomes repayable is accounted for as a change in accounting estimate under IAS 8. A repayment of a grant related to income is applied first against any unamortised deferred income for that grant, and any excess is recognised immediately in profit or loss. A repayment of a grant related to an asset is dealt with as follows.

• If the grant was deducted from the cost of the asset, the repayment increases the carrying amount of the asset.
• If the grant was deferred income, the repayment is applied against the unamortised balance of deferred income.
• In both cases, the extra depreciation that would have been recognised to date had there been no grant is recognised immediately in profit or loss.

The circumstances that make a grant repayable may also be a sign that the asset is impaired, in which case IAS 36 Impairment of Assets applies.

Illustration. Using the same asset (cost ₦1,000,000, grant ₦400,000, 10-year life), three years later the entity discovers an irregularity in the grant application and must repay the ₦400,000.

• Method 1.
  Carrying amount before repayment: cost ₦600,000 less depreciation 3 × ₦60,000 = ₦420,000.
  The repayment adds ₦400,000 to the asset.
  Without the grant, depreciation for three years would have been ₦300,000 against ₦180,000 charged, so ₦120,000 is expensed immediately.
  Carrying amount afterwards: ₦420,000 + ₦400,000 − ₦120,000 = ₦700,000, which equals cost ₦1,000,000 less three years’ depreciation of ₦300,000.
• Method 2.
  Deferred income before repayment: ₦400,000 less released 3 × ₦40,000 = ₦280,000.
  The repayment of ₦400,000 clears that balance (Dr Deferred income ₦280,000) and the remaining ₦120,000 is expensed (Dr Profit or loss ₦120,000), with Cr Cash ₦400,000.

Non-monetary grants and disclosure

A grant may be a transfer of a non-monetary asset, such as airport landing rights or import quotas. The asset and the grant can both be measured at fair value or at a nominal amount.

The notes disclose:

• the accounting policy for government grants, including the method of presentation;
• the nature and extent of the grants recognised, and an indication of other forms of government assistance from which the entity has directly benefited; and
• unfulfilled conditions and other contingencies attached to assistance that has been recognised.

Where assistance is not a grant, for example free advice, it may still be necessary to disclose its nature, extent and duration so that the statements are not misleading when the effect is significant.

The ideas in more depth

Why the two asset methods give the same profit

Method 1 charges depreciation on a smaller cost. Method 2 charges depreciation on the full cost and credits the grant to income over the same life. The net charge each year is the same. They differ in the statement of financial position: Method 1 shows a lower asset and no liability, while Method 2 shows a higher asset and a liability for deferred income.

When cash is received but a condition may fail

If an entity receives cash but doubts that it will meet a condition, the reasonable assurance test is not met. The cash is a liability, for example grants repayable, and no income is recognised. If the entity later has reasonable assurance, it releases the liability to income as the costs are incurred.

Sources and references

• IAS 20 Accounting for Government Grants and Disclosure of Government Assistance: recognition, presentation, repayment and disclosure.
• IFRS 9 Financial Instruments for loans at below-market rates; IAS 8 Basis of Preparation of Financial Statements, formerly Accounting Policies, Changes in Accounting Estimates and Errors; IAS 36 Impairment of Assets.

These points are stated as at 5 November 2026.

Worked examples

1. Method 1.
   Cost = ₦500,000 − ₦100,000 = ₦400,000.
   Depreciation = ₦400,000 ÷ 5 = ₦80,000.
   Carrying amount = ₦320,000.
2. Method 2. Cost ₦500,000, depreciation ₦100,000 (₦500,000 ÷ 5), carrying amount ₦400,000.
3. Deferred income (Method 2).
   Grant released = ₦100,000 ÷ 5 = ₦20,000.
   Balance = ₦80,000, of which ₦20,000 is current and ₦60,000 non-current.
4. Check.
   Net profit or loss charge is ₦100,000 − ₦20,000 = ₦80,000 on Method 2, equal to the ₦80,000 depreciation on Method 1.

1. Before repayment. Cost ₦600,000, accumulated depreciation ₦180,000, carrying amount ₦420,000.
2. Repayment. Dr Property, plant and equipment ₦400,000, Cr Cash ₦400,000.
3. Catch-up depreciation.
   Depreciation without the grant would have been 3 × ₦100,000 = ₦300,000.
   Charged was ₦180,000.
   Dr Profit or loss ₦120,000, Cr Property, plant and equipment ₦120,000.
4. Carrying amount afterwards.
   ₦420,000 + ₦400,000 − ₦120,000 = ₦700,000.

How to answer in the exam

• Define. Give the definitions of assistance and grant, then one line on forgivable loans.
• Explain recognition. Two tests, both required: conditions will be met and the grant will be received.
• Explain the presentation methods. State both methods for income grants and both for asset grants. Say they give the same profit.
• Prepare extracts. Show the asset, the deferred income split between current and non-current, and the profit or loss lines for each method.
• Repayment. Say change in estimate, then the entry and the catch-up depreciation.

Common mistakes in the exam

• Recognising a grant in full when the cash arrives. It is spread over the related costs.
• Crediting a grant directly to equity. IAS 20 uses the income approach.
• Not splitting deferred income into current and non-current parts.
• Depreciating the full cost under Method 1. The depreciable amount is cost less the grant.
• Forgetting catch-up depreciation when a grant is repaid.
• Treating free advice or a procurement policy as a grant.

Quick revision

• Grant: transfer of resources for compliance with conditions. Assistance: benefit specific to entities.
• Recognise only with reasonable assurance of compliance and receipt. Income approach.
• Income grants: other income, or deduct from the expense.
• Asset grants: deduct from cost, or deferred income released over the life.
• Repayment: change in estimate; catch-up depreciation to profit or loss.
• Disclose the policy, the nature and extent of grants, and unfulfilled conditions.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

Spotted a mistake? Tell us and we will check it.