Strategic Business Reporting (International) · Non-current assets

IAS 20 Government Grants: Recognition and Repayment

Updated 11 October 2026 · Fact-checked

IAS 20 says you recognise a government grant only when there is reasonable assurance that you will meet its conditions and receive it. You then match it to the costs it compensates, in profit or loss. Asset grants are shown as deferred income or deducted from the asset's carrying amount. Repayment is a change in estimate.

Understand IAS 20 Government Grants

A government grant is assistance from government, in cash or by transferring resources, given in return for past or future compliance with conditions. Government means governments, agencies and similar bodies, local, national or international.

The core idea is the income approach. A grant is not a gift to equity. It is income earned by meeting conditions, so you recognise it in profit or loss over the periods in which you incur the related costs. This is matching.

You recognise a grant only when there is reasonable assurance of two things: the entity will comply with the conditions, and the grant will be received. Receiving cash alone does not prove you have met the conditions. If the conditions are not yet met, the cash is a liability or deferred income.

There are two types. Grants related to assets require you to buy, build or acquire non-current assets. Grants related to income are all the others. For asset grants, IAS 20 allows two presentation options: show the grant as deferred income and release it to profit or loss over the asset's useful life, or deduct it from the asset's carrying amount so depreciation is lower. Both give the same profit effect each year. Only the statement of financial position differs.

Income grants can be presented as other income, or deducted from the related expense. A grant that compensates for costs already incurred, or gives immediate support with no future costs, is recognised in profit or loss in the period it becomes receivable.

A non-monetary grant, such as land, may be recorded at fair value or at a nominal amount. Government loans at a below-market interest rate are also covered. The benefit is the difference between the loan proceeds and the loan measured under IFRS 9 at market rate. You treat that difference as a government grant.

A grant that becomes repayable is a change in accounting estimate (IAS 8). It is not a prior period error. You do not restate comparatives.

Key rules to remember

Recognition test: Recognise grant only if reasonable assurance of (1) compliance with conditions AND (2) receipt; Cash received before conditions are met is deferred income, not profit.
Deferred income method (asset grant): Annual release = Grant ÷ useful life; Dr Deferred income, Cr Profit or loss. Asset depreciated on full cost.; The asset stays at full cost. The grant appears as a liability, split into current and non-current parts.
Deduction method (asset grant): Asset carrying amount = Cost − Grant; Depreciation = (Cost − Grant − residual value) ÷ useful life; Profit effect is the same as deferred income. Total assets are lower.
Repayment of an income grant: Repayment first reduces any unamortised deferred income; the excess is an immediate expense; A change in estimate, applied prospectively.
Repayment of an asset grant (deduction method): Increase asset carrying amount by the repayment; cumulative extra depreciation that would have been charged is expensed immediately; The asset's new carrying amount is depreciated over the remaining life.
Below-market government loan: Grant benefit = Loan proceeds − Fair value of loan at market rate (IFRS 9); Account for the loan at amortised cost. The benefit follows the asset or income rules.

How to solve IAS 20 Government Grants questions

Use this order for any IAS 20 question. Write each step in your answer so the marker can award marks for method.

1Identify what was given: cash, non-monetary asset, or a cheap loan. Work out the grant amount, using fair value for non-cash items.
2Check the recognition test. Are the conditions met or reasonably assured, and will the grant be received? If not, keep it as a liability or do not recognise it.
3Classify it as an asset grant or an income grant, based on the main condition attached.
4Choose the presentation: deferred income or deduction for asset grants; other income or deduction from the expense for income grants. Follow the question if it specifies a method.
5Calculate the annual profit or loss effect. Match to depreciation or to the costs the grant covers. Time-apportion where needed.
6Prepare the statement of financial position figures at the year end, including the current and non-current split of deferred income.
7If there is a repayment or breach of conditions, treat it as a change in estimate. Reduce deferred income first, then expense the rest immediately.
8Add any required disclosures and comment on judgements, such as whether the conditions are reasonably assured.

Quickest way: Three-line grant check

When to use it: Use this when a scenario gives a grant and you have limited time, especially in a 10 to 15 mark SBR part.

Ask: are conditions met or reasonably assured? If no, no profit credit.
Ask: asset or income? Asset means spread over useful life. Income means match to costs.
Compute the annual effect as Grant ÷ life. Then check the year-end deferred income: Grant − amount released. State the repayment treatment as a change in estimate.

Common mistakes in IAS 20 Government Grants

Crediting the whole grant to profit or loss in the year of receipt
Students treat cash received as income earned.
Fix: Match the grant to the related costs. For an asset grant, release over the useful life.
Deducting the grant from the asset and also releasing deferred income
Both presentation options get mixed up.
Fix: Choose one. Deferred income means full-cost depreciation plus a release. Deduction means lower depreciation and no release.
Ignoring the reasonable assurance test
Students focus on the arithmetic and skip the recognition criteria.
Fix: State the test first. If compliance is uncertain, the grant is not recognised in profit or loss yet.
Restating prior years when a grant is repaid
Repayment feels like an error correction.
Fix: Repayment is a change in estimate under IAS 8. Adjust in the current period only.
Showing all deferred income as non-current
The current portion is forgotten.
Fix: Show the next 12 months' release as current and the rest as non-current.
Treating a below-market government loan as ordinary debt at the cash received
The IFRS 9 link is missed.
Fix: Measure the loan at fair value at market rate. The difference from proceeds is the grant.

Worked examples

Example 1

On 1 January 20X1, Karta receives a grant of $200,000 towards a machine costing $1,000,000. The machine has a 10-year life, no residual value, and straight-line depreciation. Conditions are met. Show the effect in the year ended 31 December 20X1 under both presentation options.

Show the solution

The grant is related to an asset and the recognition test is met.
Deferred income method: depreciation is $1,000,000 ÷ 10 = $100,000. The release is $200,000 ÷ 10 = $20,000. The net profit or loss charge is $80,000.
Deferred income method, year end: machine carrying amount is $1,000,000 − $100,000 = $900,000. Deferred income is $200,000 − $20,000 = $180,000, of which $20,000 is current and $160,000 is non-current.
Deduction method: carrying amount at start is $1,000,000 − $200,000 = $800,000. Depreciation is $800,000 ÷ 10 = $80,000.
Deduction method, year end: carrying amount is $800,000 − $80,000 = $720,000. No deferred income.
The profit effect is $80,000 under both methods. Net position is also the same: $900,000 − $180,000 = $720,000.

Answer: Profit or loss charge is $80,000 under both methods. Deferred income method: asset $900,000 and deferred income $180,000. Deduction method: asset $720,000.

Example 2

Using the deferred income method from the previous example, at 1 January 20X3 Karta breaches a condition and must repay the whole $200,000 grant. Show the accounting at that date.

Show the solution

At 1 January 20X3, two years have passed. Deferred income released is $20,000 × 2 = $40,000. Unamortised deferred income is $200,000 − $40,000 = $160,000.
Repayment is a change in estimate, applied in the current period. No restatement of 20X1 or 20X2.
Dr Deferred income $160,000.
The remaining repayment is $200,000 − $160,000 = $40,000. Dr Profit or loss $40,000 immediately, because it relates to benefit already recognised.
Cr Liability (or cash) $200,000 for the amount repayable.
The machine continues to be depreciated at $100,000 a year.

Answer: Dr Deferred income $160,000, Dr Profit or loss $40,000, Cr Liability or cash $200,000. No restatement of prior years.

Exam tips

Always state the reasonable assurance test in your first line. It often earns a mark when the scenario hints at doubt about conditions.
If the question names a presentation method, use it. If not, choose one and note that the other gives the same profit effect.
Show the current and non-current split of deferred income. Markers look for it.
Link to other standards: IAS 16 for depreciation, IAS 8 for repayment, IFRS 9 for below-market loans. Use these links to show professional judgement.
For ethics scenarios, such as management claiming a grant before conditions are met, comment on earnings management and the risk to credibility.

Practice questions from Non-current assets

IAS 20 Government Grants in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IAS 20 Government Grants: frequently asked questions

Can I deduct an asset grant from the asset or must I use deferred income?

IAS 20 allows both for grants related to assets. Choose one and apply it consistently. The annual profit effect is the same, but total assets differ.

How do I account for repayment of a government grant?

Treat it as a change in accounting estimate. Under the deferred income method, debit deferred income first and expense any excess immediately. Do not restate prior periods.

When is a grant recognised in profit or loss?

You recognise it in the periods in which you recognise the related costs that the grant is meant to compensate. A grant for costs already incurred is recognised when it becomes receivable.

How is a below-market government loan treated?

Measure the loan under IFRS 9 at market rate. The difference between the proceeds and that fair value is a government grant, accounted for under IAS 20.