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ACCA Applied Skills · Financial Reporting · Government grants

Which one of the following items received by an entity falls within the scope of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance?

The $200,000 subsidy towards staff training is within IAS 20 because it is a government transfer of resources in return for compliance with conditions. Tax-based benefits are covered by IAS 12, a trading advantage is not measurable, and an equity investment at fair value is not a grant.

  1. AA government subsidy of $200,000 paid to Kestrel Co towards the cost of training staff in new technologyCorrect
  2. BA reduction in Kestrel Co's income tax charge because of an investment allowance calculated through the tax return
  3. CGovernment assistance in the form of a trading advantage, such as a rule that sets Kestrel Co's competitors' prices
  4. DGovernment participation in the ownership of Kestrel Co, with the government acquiring ordinary shares at fair value

Explanation

IAS 20 applies to grants and other government assistance, such as cash subsidies. Benefits provided only through the tax system (income tax reductions) are excluded because they fall under IAS 12. Government assistance that cannot reasonably be valued, such as a trading advantage, is also outside the grant accounting rules. A government share purchase at fair value is an equity investment, not a grant.

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