PAS 20 - Accounting for Government Grants and Disclosure Government Assistance

PAS 20 – Accounting for Government Grants and Disclosure of Government Assistance

• PAS 20 prescribes the accounting and disclosure of government grants and the disclosure of other forms of government assistance.

Exclusions from PAS 20

• PAS 20 does not apply to:
• Accounting for government grants under hyperinflationary economies, where hyperinflation is rapid, excessive, and out-of-control general price increases.
• Tax benefits, such as: + Income tax holidays, a government incentive program that offers a tax reduction or elimination to businesses. + Investment tax credits, permits businesses to deduct a specified percentage of certain investment costs from their tax liability, in addition to the normal allowances for depreciation. + Accelerated depreciation allowances, a concentration of depreciation allowances in the early years of an asset's life. + Reduced income tax rates, a tax percentage that is low.
• Government participation in the ownership of the entity.
• Government grants covered by PAS 41 Agriculture.

Government Grants

• Government grants are assistance received from the government in the form of transfers of resources in exchange for compliance with certain conditions.
• Examples of government grants:
• Receipt of cash, land, or other non-cash assets from the government subject to compliance with certain conditions.
• Receipt of financial aid in case of loss from a calamity.
• Forgiveness of an existing loan from the government.
• Benefit of a government loan with below-market rate of interest.
• Only government assistance that meets the asset recognition criteria are recognized as government grants.
• Government grants exclude government assistance whose value cannot be reasonably measured or cannot be distinguished from the entity's normal trading transactions.

Forms of Government Assistance

• The following are forms of government assistance but are not government grants:
• Tax benefits, generally refer to any tax law that provides an opportunity to reduce one's tax bill when satisfying certain eligibility requirements.
• Free technical or marketing advice.
• Provision of guarantees.
• Government procurement policy that is responsible for a portion of the entity's sales.
• These are disclosed but not recognized as government grants.

Recognition of Government Grants

• Government grants are recognized if there is reasonable assurance that:
• The attached conditions will be complied with.
• The grants will be received.
• The mere receipt of a grant does not necessarily mean that it is recognized as a government grant.
• PAS 20 provides the following reasons why the receipt of government assistance may be significant in the preparation of the financial statements:
• If resources are received, an appropriate accounting method is necessary to account for the receipt.
• The indication of the extent to which the entity has benefited from the assistance during the period improves the comparability of its financial statements.