Government Grants

- Also known as subsidies, subven2ons or premiums

- Assistance received from the gov’t in the form of transfers of resources in exchange for
compliance with certain condi2ons.
- All Gov’t Grants are Gov’t Assistance, but not all Gov’t Assistance are Gov’t Grants

Examples of Gov’t Grants:

1. Receipt of cash, land or other non-cash assets from the gov’t subject to compliance with
certain condi2ons
2. Receipt of financial aid in case of loss from a calamity
3. Forgiveness of an exis2ng loan from the gov’t
4. Benefit of a government loan with below-market rate of interest

Examples of Gov’t Assistance but NOT Gov’t Grants:

1. Tax Benefits
2. Free Technical or Marke2ng Advice
3. Provision of Guarantees
4. Gov’t Procurement Policy that is Responsible for a Por2on of the En2ty’s Sales

Examples of NOT Gov’t Assistance:

1. Public Improvements that Benefit the en2re Community
2. Imposi2on of Trading Constraints on Compe2tors

Reasons why the Receipt of Gov’t Assistance may be Significant:

1. If resources are received, an appropriate accoun2ng method is necessary to account for
the receipt
2. The indica2on of the extent to which the en2ty has benefited from the assistance during
the period improves the comparability of its financial statements

Recogni2on:
Gov’t Grants are recognized if here is reasonable assurance that:
1. The aTached condi2ons will be complied with
2. The grants will be received
The mere receipt of a grant is NOT conclusive evidence that the aTached condi2on has been or
will be sa2sfied.

Characteris2cs:
1. An economic benefit received from the gov’t
2. Direct benefits are specific to the recipient en2ty
3. With measurable value
4. Received or receivable in return for past or future compliance with aTached condi2on
5. There is reasonable assurance that the recipient en2ty will comply to the aTached
condi2ons
6. There is reasonable assurance that the grant will be received

Types of Gov’t Grants according to ATached Condi2on:

1. Grants related to Assets – grants whose primary condi2on is that the recipient en2ty
should acquire or construct long-term assets. (Purchase and Construc2on)
a. Cash is received from the gov’t with the condi4on that the amount should
be used to acquire equipment
b. Land is received from the gov’t with the condi4on that a building should be
constructed on it
2. Grants related to Income – grants other than those related to assets

Measurement:
Monetary Grants Non-Monetary Grants
a. Amount of Cash Received b. FV of the non-monetary asset received
 1
c. FV of the amount receivable d. Nominal Amount (alterna2vely)

Gov’t Grants may be in the form of LOAN:

1. 2Forgivable Loan – measured at the carrying amount of the loan forgiven
2. Loan at Below-Market Rate of Interest (Zero Interest) – measured as the difference
between the ini2al carrying amount of the loan determined in accordance with PFRS 9
and the proceeds received

Approaches to the Accoun2ng for Gov’t Grants:

1. Capital Approach – grant is recognized outside P/L or in equity (Dona2on)
2. Income Approach – grant is recognized in P/L over one or more periods (PAS 20)

Accoun2ng for Gov’t Grants:

- Gov’t Grants uses 3Matching Concept
a. Special Expenses – recognized in P/L over the period of related expenses
b. Depreciable Assets – recognized in P/L over the period and in the propor2ons in which
deprecia2on expense on those assets is recognized (Method of compu2ng
Deprecia2on Expense is used to also compute for the Income from Gov’t Grant)
c. Non-Depreciable Assets – recognized in P/L when the costs of fulfilling the aBached
condiCon is incurred (Method of aTached depreciable asset to compute for the
Deprecia2on Expense is used to also compute for the Income from Gov’t Grant)
d. (Financial Aid) Compensa2on for Expense/Losses Already Incurred – recognized
immediately in P/L when it becomes receivable
- Recognizing Gov’t Grants in P/L on a Receipts Basis (Cash Basis) is PROHIBITED as it
violated the Accrual Basis of Accoun2ng.

Presenta2on:
1. Grants Related to Assets
a. Statement of Financial Posi2on
i. Gross Presenta2on – grant is a deferred income (liability)
ii. Net Presenta2on – grant is deducted from the carrying amount of the
related asset
b. Statement of Comprehensive Income (P/L Sec2on)
i. Gross Presenta2on – income is reported separately or included in “other
income”
ii. Net Presenta2on – income is deducted from the deprecia2on expense
c. Statement of Cash Flows – cash flows from the receipt of the grant and the
acquisi2on of the related assets are presented separately, even if the en2ty uses
either presenta2on.

Gross Presenta+on:
Cash Cash Received
Deferred Income – Gov’t Grant Cash Received
Asset Total Cost of Asset
Cash Total Cost of Asset
DepreciaCon Expense Total Cost/Useful Life
Accumulated DepreciaCon Total Cost/Useful Life

Deferred Income Cash Received/Useful Life

Income from Gov’t Grant Cash Received/Useful Life

Net Presenta+on:
Cash Cash Received

1
The price that would be received to sell an asset or paid to transfer a liability in an orderly transac6on between
marker par6cipants at the measurement date.
2
A loan that the lender (gov’t) waives repayment subject to certain condi6on.
3
Recognized in P/L on a systema6c basis over the periods in which the en6ty recognizes as expenses the related
costs for which the grants are intended to compensate.
 Deferred Income – Gov’t Grant Cash Received
Asset Total Cost – Cash Received
Deferred Income – Gov’t Grant Cash Received
Cash Total Cost
DepreciaCon Expense (Total Cost – Cash Received)/Useful Life
Accumulated DepreciaCon (Total Cost – Cash Received)/Useful
Life

2. Grants Related to Income

a. Statement of Comprehensive Income (P/L Sec2on)
i. Gross Presenta2on – income is reported separately or included in “other
income”
ii. Net Presenta2on – income is deducted from the related expense

Gross Presenta+on:
Cash Cash Received
Deferred Income – Gov’t Grant Cash Received
Expense Actual Cost
Deferred Income (Cash Received x Actual Cost)/Est. Total Cost
Cash Actual Cost
Income from Gov’t Grant (Cash Received x Actual Cost)/Est. TC

Net Presenta+on:
Cash Cash Received
Deferred Income – Gov’t Grant Cash Received
Expense Actual Cost – [(Cash Received x Actual Cost)/
Deferred Income – Gov’t Grant Est. Total Cost]
Cash Actual Cost

3. Grant Related to Non-Depreciable Asset

Gross Presenta+on:
Land FV of Land
Deferred Income – Gov’t grant FV of Land
Asset Total Cost
Cash Total Cost
DepreciaCon Expense (Total Cost – Residual Value)/Useful Life
Accumulated DepreciaCon (Total Cost – Residual Value)/Useful
Life

Deferred Income – Gov’t Grant FV/Useful Life

Income from Gov’t Grant FV/Useful Life

4. (Financial Aid) Compensa2on for Losses Incurred

Entries:
Loss Est. Damages
Various Asset Accounts Est. Damages
Cash Cash Received
Income from Gov’t Grant Cash Received

5. Forgivable Loans
Entries:
Loan Payable Carrying Amount
Income from Gov’t Grant Carrying Amount

6. Loans at Below Market-Interest Rate (Zero Interest)

Entries:
Cash Face Amount
Discount on Loan Payable Face Amount – (Face Amount x PV of 1)
 Loan Payable Face Amount
Deferred Income – Gov’t Grant Face Amount – (Face Amount x PV of
1)
Interest Expense (Face Amount x PV of 1) x %
Deferred Income (Face Amount x PV of 1) x %
Discount on Loan Payable Face Amount x PV of 1) x %
Income from Gov’t Grant Face Amount x PV of 1) x %

Repayment of Grants:
- A gov’t grant that has become repayable because of failure to sa2sfy the aTached
condi2on, is treated as a CHANGE IN ACCOUNTING ESTIMATE
- Accounted for PROSPECTIVELY
1. Approach 1 (Repayment of a Grant Related to Income)
a. Unamor2zed Deferred Income
b. Excess – recognized as Expense (Loss)

Proforma:
Deferred Income, beginning Cash Received
Less: Income from Gov’t Grant, first yr (Cash Received x Expense)/Est. Cost
Income from Gov’t Grant, second yr (Cash Received x Expense)/Est. Cost
Deferred Income, current =

Entry:
Deferred Income – Gov’t Grant Deferred Income, current
Loss on Repayment of Gov’t Grant Cash Received – Deferred Income
Cash Cash Received

2. Approach 2 (Repayment of a Grant Related to Asset)

a. Increase Carrying Amount of the Asset
b. Cumula2ve Deprecia2on – recognized as Expense (Loss)

Gross Presenta+on:
Proforma
Deferred Income, beginning Cash Received
Less: Income from Gov’t Grant – 2 yrs Cash Received x (Yrs/Useful Life)
Deferred Income, current =

Entry
Deferred Income – Gov’t Grant Deferred Income, current
Loss on Repayment of Gov’t Grant Cash Received – Deferred Income
Cash Cash Received

Net Presenta+on:
Proforma
a. Cash Received is added back to the Asset’s Carrying Amount
b. Annual Deprecia2on is recognized as Addi2onal Accumulated Deprecia2on
c. Difference between the adjustments in (a) and (b), and the repayment is recognized as
Gain or Loss

Entry
Asset Cash Received
Loss on Repayment of Gov’t Grant Annual Deprecia2on x Yrs
Accumulated DepreciaCon Annual Deprecia2on x Yrs
Cash Cash Received