This free, guided checker walks your finance team through the key decision points for IAS 20 Government Grants Recognition. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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IAS 20.3 defines government grants as transfers of resources from government in return for past or future compliance with conditions relating to operating activities; 'government' includes agencies and similar local, national, or international bodies. IAS 20.2 scopes out income tax benefits such as tax holidays and investment tax credits (IAS 12 applies) and government participation in ownership. Read the award document for the granting body and the compliance conditions before concluding on scope.
IAS 20 does not apply; assess IAS 12 for income tax incentives or the standard governing the underlying transaction for other assistance (IAS 20.2).
Official guidance: IFRS issued standards
IAS 20.2(c) excludes government participation in the ownership of the entity from the standard's scope, so a share subscription or capital injection made by government in its capacity as shareholder is an equity transaction, not grant income. Weigh whether the government receives shares, voting rights, or dividend entitlement in exchange for the funds. Mixed arrangements may need to be split between an ownership component and a grant component based on the substance of each element.
Record the government's contribution in its capacity as owner directly in equity; IAS 20 does not apply to ownership participation (IAS 20.2(c)).
Official guidance: IFRS issued standards
IAS 20.7 sets two cumulative recognition gates: reasonable assurance of compliance with the grant's conditions and reasonable assurance of receipt. Weigh the entity's ability and intent to meet employment, investment, or operational targets, the granting body's approval status, and any history with similar programs. Receipt of the cash does not itself provide reasonable assurance that conditions will be met (IAS 20.8) - a common error is recognizing income on receipt while clawback conditions remain substantive.
Do not recognize grant income; hold amounts received as a liability until both IAS 20.7 conditions - compliance and receipt - are reasonably assured.
Official guidance: IFRS issued standards
IAS 20.3 distinguishes grants related to assets, whose primary condition is the acquisition or construction of long-term assets, from grants related to income (all other grants). The classification drives presentation: asset grants use deferred income or a deduction from the asset's cost (IAS 20.24), while income grants are recognized in profit or loss over the periods of the related costs (IAS 20.12, IAS 20.17). Read the award conditions rather than the entity's intended use of the cash - a general-support grant spent on equipment is still an income grant.
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Official guidance: IFRS issued standards
IAS 20.24 allows grants related to assets to be presented either as deferred income or as a deduction from the asset's carrying amount; both are acceptable alternatives (IAS 20.25-27). The election is an accounting policy that should be applied consistently to similar grants and disclosed under IAS 20.39(a). Note the cash-flow presentation consequence: the deduction method nets the grant against capital expenditure, while the deferred income method grosses up both (IAS 20.28).
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Official guidance: IFRS issued standards
IAS 20.12 requires income grants to be recognized in profit or loss on a systematic basis over the periods in which the entity recognizes the related costs the grant is intended to compensate. A grant receivable as compensation for expenses or losses already incurred, or as immediate financial support with no future related costs, is recognized when it becomes receivable (IAS 20.20-21). Identify what the grant compensates from the award terms; recognizing multi-period grants entirely on receipt is the common misapplication.
Recognize the income-related grant in profit or loss on a systematic basis over the periods of the related costs (IAS 20.12), or when receivable if it compensates costs already incurred (IAS 20.20).
Official guidance: IFRS issued standards
It is fundamental to the income approach that grants are recognized in profit or loss on a systematic basis over the periods in which the entity recognizes the related costs, not on a cash basis (IAS 20.12, IAS 20.16). Build a schedule that maps each tranche of grant income to the qualifying expenditure or milestone that earns it, and true it up as actual spend diverges from plan. Where milestones are all-or-nothing, assess whether reasonable assurance under IAS 20.7 exists for each milestone before accruing.
Rebuild the recognition schedule so grant income tracks qualifying costs or milestone achievement on a systematic basis per IAS 20.12 and IAS 20.16.
Official guidance: IFRS issued standards
IAS 20.10A requires the benefit of a government loan at a below-market rate of interest to be treated as a government grant: the loan is recognized and measured under IFRS 9 at fair value, and the benefit equals the difference between that initial carrying amount and the proceeds received. Compare the contractual rate with the rate the entity would obtain on a similar commercial borrowing (term, currency, security, credit standing). Recording the loan at face value and ignoring the concession understates both the liability discount and the grant.
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Official guidance: IFRS issued standards
Measure the concessional loan at fair value on initial recognition by discounting the contractual cash flows at a market rate for a similar commercial loan; the shortfall against proceeds is the grant (IAS 20.10A). The liability then unwinds to face value through interest expense at the effective rate under IFRS 9, while the grant component follows the asset-grant or income-grant recognition pattern depending on what the loan finances. Document the market-rate benchmark - it is the key judgement an auditor will challenge.
Measure the loan at fair value under IFRS 9 and account for the difference from proceeds as a government grant per IAS 20.10A before finalizing the entries.
Official guidance: IFRS issued standards
A forgivable loan is one the lender undertakes to waive repayment of under prescribed conditions (IAS 20.3). IAS 20.10 treats it as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness; until then it stays on the balance sheet as a liability. Evaluate the forgiveness conditions - headcount retention, qualifying spend, continued operation in a region - against current facts and forecasts each reporting date.
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Official guidance: IFRS issued standards
Once there is reasonable assurance the forgiveness terms will be met, IAS 20.10 treats the forgivable loan as a grant; income is then recognized on a systematic basis over the periods in which the entity recognizes the costs the forgiveness compensates (IAS 20.12). Waiting for the government's formal forgiveness letter when assurance already exists defers income to the wrong period; conversely, recognizing income while a substantive condition remains unmet overstates it. Reassess at each reporting date and keep the compliance evidence current.
Align forgivable-loan derecognition with satisfaction of the forgiveness conditions under IAS 20.10, recognizing grant income systematically per IAS 20.12.
Official guidance: IFRS issued standards
IAS 20.39 requires disclosure of (a) the accounting policy and presentation methods adopted, (b) the nature and extent of grants recognized and other forms of assistance benefiting the entity, and (c) unfulfilled conditions and other contingencies attaching to recognized assistance. Draft the clawback disclosure from the award terms: a grant that becomes repayable is accounted for as a change in estimate under IAS 20.32, so users need to understand the conditions that could trigger repayment. Cross-check the policy note against the deferred-income or asset-deduction election actually applied.
Recognize the grant under the elected asset or income presentation with the IAS 20.39 policy, nature-and-extent, and contingency disclosures in place. Complete the IAS 20.39 disclosure pack - policy, nature and extent of grants, and unfulfilled conditions and contingencies - before finalizing the grant entries.
Official guidance: IFRS issued standards
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