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Government Grants related income

The presentation of government grants is dependent on whether it is a grant related to income or a grant related to assets. Whilst government grants are more common in the form of income, there is potential that entities could receive grants related to the purchase, acquisition or construction of assets. If this circumstance exists, one could argue the subsidy should be spread over the term of the loan as an interest adjustment. Government what is grant accounting grants related to assets, including non-monetary grants at fair value, are presented in the statement of financial position either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. Government grants are transfers of resources to an entity by government in return for past or future compliance with certain conditions relating to the operating activities of the entity.

Is it recognised in the correct period?

The amount of promises to give that do not yet meet all conditions for revenue recognition must be disclosed. For example, if a grant stipulates reimbursing costs incurred over a 3 year project period, any promised amounts not yet earned should be disclosed in the footnotes. Promises from government entities should be evaluated to determine if they are enforceable and measurable under FAS 116 guidance. Conditional promises to give are recognized when conditions are substantially met. In both cases, the grant funds cannot be recognized until the conditions in the grant agreement are met.

• Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.
• The spend that relates to development activities is capitalized as an intangible asset when the criteria in IAS 383 are met.
• If you would like to discuss any of the points raised, please speak to your usual Grant Thornton contact or your local member firm.
• Apply the accounting provisions of the Standard only to grants or portions of grants becoming receivable or repayable after the effective date of the Standard.
• For nonprofits like Vintti, there are no tax consequences to receiving a grant, as long as the funds are used to further the organization’s mission.

Core Principles for Recognizing Grant Revenue

Examples of such benefits are income tax holidays, investment tax credits, accelerated depreciation allowances and reduced income tax rates.’ (IAS 20.2(b)). IFRS has specific requirements for government grants that apply to all entities; US GAAP has limited guidance for ‘business entities’. “Government Grants are assistant by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transaction of the entity”. Both methods are regarded as acceptable for the presentation of grants related to income. Disclosure of the grant may be necessary for a proper understanding of the financial statements.

• OSHA awards grants to nonprofit organizations, including community and faith-based groups, employer associations, labor unions, joint labor-management associations, Native American tribes, and local and state-sponsored colleges and universities.
• Certain forms of government grants given to lessors for the benefit of lessees have been proposed, including land tax holidays or refunds, which may or may not be directed by a government body.
• An accounting system that is not designed for grant management will create extra work and may not provide proper transparency and stewardship of funds.
• The presentation can be either separately or under a general heading; for instance as “Other income”.
• We generally present this type of grants in the statement of financial position.

• A company should consider whether the change in circumstances that triggered the grant repayment may indicate that the asset, whose carrying amount has increased, is impaired.
• IAS 20 defines a government grant as a transfer of resources in return for past or future compliance with certain conditions relating to the operating activities of the company.
• If the grants is for past costs, such grants shall be recognized in the Income Statement immediately; however, if the grants is for current and future costs, such grants shall be recognized in the period it incurs.
• Conditional promises to give are recognized when conditions are substantially met.

A corresponding financial liability is recognized for the amount of the repayment. Unlike IFRS, US GAAP has specialized industry accounting requirements for not-for-profit entities (NFPs) that receive government grants. For other (business) entities, US GAAP does not contain specific guidance on the accounting for government grants. Consistent with historical practice, business entities might look to IAS 20 as a source of nonauthoritative guidance, or they might apply the US GAAP contribution accounting model in the Contributions Received Subsections of ASC 958 for NFPs. The accounting for government grants and any relevant disclosures of any government assistances are covered in IAS 20 – Accounting for Government Grants and Disclosure of Government Assistence.

Disclosure and Reporting Requirements for Government Grants

An example of assistance that cannot be distinguished from the normal trading transactions of the entity is a government procurement policy that is responsible for a portion of the entity’s sales. The existence of the benefit might be unquestioned but any attempt to segregate the trading activities from government assistance could well be arbitrary. A government grant may take the form of a transfer of a non‑monetary asset, such as land or other resources, for the use of the entity. In these circumstances it is usual to assess the fair value of the non‑monetary asset and to account for both grant and asset at that fair value. An alternative course that is sometimes followed is to record both asset and grant at a nominal amount.

• The grant is recognized in the statement of activities over the useful life of the asset.
• In some circumstances, a government grant may be awarded for the purpose of giving immediate financial support to an entity rather than as an incentive to undertake specific expenditures.
• Thus a grant is accounted for in the same manner whether it is received in cash or as a reduction of a liability to the government.
• Presenting the expenses without offsetting this way reflects the uniqueness of the COVID-19 pandemic and its impact on its financial performance during the reporting period.
• The benefits of fund accounting for government grants include the ability to manage finances and improve organization fiscal health.
• This facilitates comparison of an entity’s financial statements with those of prior periods and with those of other entities.

Reasonable assurance of receipt