IAS 20 government grants

What is a government grant?

A transfer of resources from government, including government agencies and similar bodies, in return for past or future compliance with conditions relating to the company's operations. IAS 20 does not cover assistance that cannot reasonably be valued, such as free technical advice, which is disclosed instead; transactions with government that cannot be distinguished from normal trading; benefits delivered through income tax, such as tax credits, which fall under IAS 12; or grants on biological assets measured at fair value, which fall under IAS 41. See government grants in agriculture and climate tax incentives.

When is a grant recognised?

When there is reasonable assurance that the company will comply with the conditions and that the grant will be received. Receiving the cash is not by itself evidence that the conditions have been or will be met. A grant that compensates for expenses already incurred, or that is given as immediate financial support with no future costs attached, is recognised in profit or loss when it becomes receivable.

How are grants presented?

• Grants related to assets: either as deferred income released to profit or loss over the asset's useful life, or deducted from the asset's carrying amount, so that the lower depreciation charge carries the benefit. Either way, the cash flow statement shows the grant and the asset purchase separately.
• Grants related to income, such as wage subsidies: either presented as income, often as other income, or deducted from the related expense.
• Non-monetary grants, such as land: measured at fair value, or at a nominal amount with the asset recorded at that amount too.

See government grants in manufacturing.

IAS 20 in practice: an equipment grant and a low-interest loan

A company receives a CU 600 thousand grant towards equipment costing CU 2,400 thousand with a 4-year life, using the deferred income approach. It also borrows CU 1,000 thousand from a government agency at 1% interest for 3 years when its market rate is 6%; the loan's fair value is the present value of its cash flows at 6%, CU 866.35 thousand. All figures are in CU thousand.

Each year the equipment's depreciation of 600 is matched by grant income of 150, a net charge of 450, the same as if the grant had been deducted from the asset's cost. The loan is carried at amortised cost under IFRS 9, with interest at the market rate; the benefit of 133.65 is a grant, released to profit or loss as the costs it was meant to fund are recognised. See IFRS 9 classification.

How are forgivable loans treated?

A forgivable loan, one the lender undertakes to waive if conditions are met, is treated as a government grant once there is reasonable assurance that the company will meet the conditions for forgiveness. Until then, it is a liability under IFRS 9.

What if a grant must be repaid?

A grant that becomes repayable, for example because conditions were breached, is accounted for as a change in accounting estimate. Repayment of an income grant is applied first against any unamortised deferred income and then expensed. Repayment of an asset grant increases the asset's carrying amount or reduces the deferred income, and the extra depreciation that would have been charged without the grant is recognised immediately. See IAS 8 policies, estimates and errors.

How does IAS 20 compare with US GAAP?

US GAAP had no recognition guidance for grants to business entities, and many applied IAS 20 by analogy. ASU 2025-10, issued in December 2025, adds Topic 832 for grants of monetary and tangible assets: grants are recognised when it is probable the company will comply with the conditions and receive the grant, with a deferred income approach or a cost accumulation approach for asset grants, while below-market loans are outside its scope. It applies to public business entities for annual periods beginning after 15 December 2028, a year later for others. See IFRS vs US GAAP key differences.

This guide is general information. It is not tax or legal advice for your situation.