IAS 20 (International Accounting Standard 20) is a financial reporting standard issued by the International Accounting Standards Board (IASB) that provides guidance on accounting for government grants and other forms of government assistance.
The standard requires entities to recognize government grants and assistance as income when there is reasonable assurance that the entity will comply with the conditions attached to the grants, and that the grants will be received.
IAS 20 sets out the accounting treatment for government grants related to specific assets or expenditures, as well as grants related to income. It requires entities to account for government grants related to specific assets or expenditures as either deferred income or as a reduction in the carrying amount of the related asset.
IAS 20 also requires entities to disclose information about government grants received, including the nature and extent of the grants, and any conditions attached to them. The standard also requires disclosure of the amount of grants recognized in the financial statements, and how they have been accounted for.
Accounting for Government Grants Example
A company has been awarded a government grant of $100,000 to fund a specific research and development project. The grant is conditional on the company completing the project within two years and reporting on the progress of the project to the government on a quarterly basis.
Under IAS 20, the company would recognize the government grant as income in its financial statements when it is reasonable to assume that it will comply with the conditions attached to the grant and that the grant will be received. In this case, the company might recognize the grant as income over the two-year period that it is working on the project, as it meets the conditions attached to the grant and the grant is reasonably assured.
If the government grant is related to a specific asset or expenditure, such as the purchase of new equipment for the research and development project, the company would account for the grant as either deferred income or a reduction in the carrying amount of the related asset. For example, if the equipment costs $50,000 and the grant covers 50% of the cost, the company would record the equipment at a carrying amount of $25,000 and recognize the remaining $25,000 of the grant as deferred income.
IAS 20 requires disclosure of the amount of government grants recognized in the financial statements, how they have been accounted for, and any conditions attached to them. In this example, the company would need to disclose the nature and extent of the grant, the conditions attached to it, and the amount recognized as income and as a reduction in the carrying amount of the related asset.