IAS 20 is an accounting standard issued by the International Accounting Standards Board (IASB) that provides guidance on the accounting treatment and disclosure of government grants and other forms of government assistance. The standard applies to all government grants and other forms of government assistance, except those related to income taxes.
The standard requires an entity to recognize government grants in the income statement when there is reasonable assurance that the conditions attached to the grant will be met, and the grant will be received. The standard provides two methods for accounting for government grants:
- Capital approach: This method involves recognizing the government grant as a deferred income liability, and releasing it to income over the useful life of the asset for which the grant was received. For example, a government grant received for the construction of a new building would be recognized as a deferred income liability and released to income over the useful life of the building.
- Income approach: This method involves recognizing the government grant as income in the income statement in the same period in which the related expenses are recognized. For example, a government grant received to cover research and development costs would be recognized as income in the same period in which the related expenses are recognized.
The standard also requires an entity to disclose information about government grants and other forms of government assistance, including the nature and extent of the assistance received, and any significant conditions attached to the assistance.
Examples of government grants and assistance include:
- Cash grants: This may include direct cash payments from the government to support specific activities, such as research and development or capital investment.
- Tax incentives: This may include tax credits, exemptions, or other forms of tax relief provided by the government to encourage certain types of economic activity.
- Subsidies: This may include payments or other forms of support provided by the government to certain industries or sectors, such as agriculture or renewable energy.
- Forgivable loans: This may include loans from the government that are forgiven if certain conditions are met, such as the creation of new jobs or the completion of a specific project.
Overall, IAS 20 aims to ensure that entities report government grants and other forms of government assistance in a transparent and consistent manner, providing investors and other stakeholders with useful information about an entity’s financial performance and obligations related to such assistance.