IAS 20: Government Grants

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A government grant is described as assistance in the form of transfers of resources to an entity in return for past or future compliance with certain conditions. For example, it may be a condition of the grant that the organisation sets up operations in an area of low employment in a bid to boost employment. It is a handy tool that governments use to stimulate investment in areas that would otherwise be neglected. Another example would be that the organisation is required to provide an apprentice program for under 21.

IAS 20 requires that the grants should not be recognised until there is reasonable assurance that the entity will comply with the requirements of the grant. This is an application of prudence being as income is only being recognised if it will probably be received.

The standard also requires that the grant be recognised in profit in a systematic manner that matches the recognition of related costs that is the costs that the grant is intended to compensate